Many Troubling Questions As The Detroit Dinosaur Bailout Picks Up Momentum

Disparate but interconnected events in these extraordinarily tough economic times are begging an important question: What business does government have telling private companies how to run their businesses?

In Chicago, Governor Rod Blagojevich (who was arrested yesterday on unrelated corruption charges) has told Bank of America that Illinois will no longer do business with the huge bank until credit is restored to a closed door and window factory so workers who are conducting a sit-in there can get severance pay and vacation time owed.

In Washington, congressfolk are putting the finishing touches on a $15 billion bridge loan package for General Motors and Chrysler (Ford is sitting out this dance) that President Bush is expected to sign off on. The package includes strings ranging from periodic evaluations on whether the companies are making sufficient progress on restructuring their archaic operations to a ban on suing states over greenhouse gas emission standards.

The Big One and a Half bailout seems especially problematic because it flies in the face of free enterprise and smacks of one of the dirtiest words in the U.S. political lexicon -- nationalization.

That is something that has happened only once in American history to an industry: In 1952, when President Truman seized steel mills rather than allow a strike that could imperil the manufacture of materiel for the Korean War. (The "to an industry" caveat is important because Washington's recent lip locks with AIG and Fannie and Freddie Mac arguably are nationalizations.)

When it comes to corporate management, the government's record is notably sucky. But the alternative to not bailing out Detroit is even more perilous to all but the most hard bitten economic conservative: Millions of layoffs of assembly plant workers, suppliers and the loss of jobs at ancillary businesses, including the mom-and-pop stores in factory neighborhoods.

Speaking for myself, the catastrophic job news -- 533,000 lost in November alone and in excess of 2 million for the year -- has had a clarifying effect and after being on the fence I have jumped off onto the side of the bailout. Auto execs don't deserve to be rewarded for their incorrigibility but their workers don't deserve being out in the cold.

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There is a precedent for what Washington is on the verge of doing that should be particularly uncomfortable for the tin cup rattlers in Detroit: The hands-on role that Japan's Ministry of International Trade and Industry took in that nation's nascent export car market in the 1970s and 1980s.

Congress cried blue-blooded murder, declaring that Japanese micromanagement of its automakers put American automakers at an unfair competitive disadvantage.

The ministry even dictated which parts of the market Toyota, Datsun (now Nissan) and Honda should go into. Soichiro Honda, the founder of the company bearing his name, was told he should stick to motorcycles. He didn't, and as they say, the rest is history.

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As I noted in this lengthy screed on whether General Motors should be saved from itself, things are likely to get a lot worse before they get better in part because the products the once mighty automaker has in the pipeline are mostly crap.

Let's see: There is a retro Camaro muscle car, more SUVs and a new Buick LaCrosse. The second-generation Malibu, a pretty damned good car, is on hold, which leaves only the plug-in hybrid Volt, a prototype of which GM CEO Rick Wagoner rode in as he arrived in Washington the other day amidst great ceremony. But it isn't scheduled to be introduced until the 2011 model year.

Now there are reports that the Volt has been short circuited and that project engineers are being shown the door. As it is, the Volt gets only 40 miles to a charge (seriously) before the fossil-fuel engine kicks in. There are several high-gas mileage hybrid and purebred technology models available at your Toyota-Lexus and Honda dealers that run circles around the Volt, and it figures that GM not only would get into the advanced technology game way late but would put all of its eggs into a plug-in.

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From the September 30, 1916 issue of The Economist:

"A Boston correspondent writes: Bethlehem Steel's amazing market rise has been eclipsed. This week General Motors stock sold at $697 per share, the highest price at which any stock ever has sold on the New York Stock Exchange, with the exception of Northern Pacific. The latter issue sold on one occasion at the record price of $1,000 per share, but this was a forced price during the corner of 1901.

" . . . The stock market career of General Motors stock has been spectacular in the extreme, surpassing even the rise of Bethlehem Steel. In 1913-14 it sold as low as $25 per share; for many months after the market soared as a result of munition and motor orders, it lagged behind other issues of its class. Even in 1915 it sold for only $82 per share. Then it began to advance under steady buying, and its low point for the present year never went below $405.

"The General Motors Company has under way a recapitalisation plan that calls for a 400 per cent stock dividend on the common, equivalent to five shares of non-par value stock for each share of the present capital stock. . . . The unusual advance in the market value of the stock is believed to be a reflection of the public approval of the new plan and of the company's unprecedented earnings."

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Fans of General Motors Vice Chairman Robert Lutz like to say that he personifies the swagger and confidence that Detroit seems to have lost. He also personifies the mentality that has GM stock trading at under $4.

The General took the muzzle off of the outspoken Lutz this week in an effort to promote the canard that much of the criticism of the car maker "would have been legitimate of General Motors in the 1980s, but not today."

For good measure, Lutz gave the lawmakers who are now prepared to dump a few billion bucks into GM's tin cup a kick in the slats.

"I have personally been sensing this hostility on the part of Washington my whole life," he declared, conveniently forgetting that GM could not have asked for better enablers in keeping fleet gas mileage averages ridiculously low, thumbing their noses at environmental concerns and blithely ignoring the impact of globalization.

I have repeatedly called for CEO Wagoner to be fired; Lutz needs to go bye-bye, as well.

Photographs by Bloomberg News, Getty Images, Reuters