David Reynolds | O’s Tar Baby
Lyndon Johnson had his Vietnam. Jerry Ford had price controls. Jimmy Carter had inflation. Richard Nixon had you know what. Bill Clinton had you know who. George W. Bush tried to imitate a Democrat. And so in 2008 America decided to vote for the real thing.
So what will be Barrack Obama’s tar baby? What issue will the president see as appealing as a beautiful baby, but eventually get him stuck in a sea of tar?
Before Mr. Obama’s lease expires at 1600 Pennsylvania Avenue, he may have a record number of presidential tar babies. Active presidents suffer that fate. But for now, I will nominate his first.
Mr. Obama has already said, “I don’t wish to run a car company.” He knows — but he can’t let us know that he knows — that he is already doing just that. Its name? I call it “GM — Government Motors.”
Tar babies are unlike wars. There is no exit strategy. Why make plans to stop doing something that is so egotistical pleasant?
How are tar babies get born? Last week I wrote about why Washington will fail us. Ever since a swamp was drained at the tidal head of the Potomac and layers of earth were uncovered the workers thought they had found supreme wisdom — when all it was was mud and tar. Then they built a railroad connecting the swamp with points north and a few well known schools in order to import more wisdom. Thus the ground was set for a long history of federal city tar babies.
Washingtonians think of themselves as being above those living elsewhere, especially in fly over country. That in where Detroit, Michigan is located. Once upon a time they made cars there. Like New Yorkers, Washingtonians know that they are more exceptional than those who live south or west of them. From Boston to DC there are folks who think that with enough money and East coast smarts anyone can make a car. But will it sell?
Let us say you are the president and there is a recession going on and you wish to save a major industry. Would you do any the following?
First, would you give away tens of billions of dollars when the company’s’ books show that bankruptcy is only months away? But you did. You threw money at the problem because that is what Washington does best. As usual, you forgot, whose money it is.
Next, you and the whiz kids next door at Treasury forgot — or never knew — that Detroit does not build cars. It only assembles them. That’s correct. Detroit assembles cars from hundreds of parts made by suppliers. In he auto industry the sum of the parts are truly greater than the whole. And also remember: There is no U.S. auto industry; there is only a global auto industry.
So if you need to bail out those who put wheels on a car, you also need to help those who make the wheels. And the tires. And the transmissions. And the fuel pumps. And the . . . . Get the picture? See the tar covering your baby?
You may have also forgotten that buying a car is not like buying a lawnmower. Only 10 percent pay cash for a car; another 20 pecent lease. That leaves 70 percent who can not buy wheels until all the tar is removed from another baby. Job one for Mr. Obama: Clean up one tar baby at a time. Clean up the credit mess first.
Finally, there is the critical selling end of the business — the part Washington has overlooked. Current bankruptcy court plans are to put out to sea 10 percent or more of Chrysler’s dealers, while 40 percent of GM’s independent dealers may never make it to court before receiving their pink slip.
Let’s see if I understand this: Car sales are down, so you get rid of a loyal army of franchise car dealers and their sales people, none of which are on GM’s payroll. Meanwhile, UAW workers are still being paid with costly benefits for not producing cars, plus being rewarded with huge ownership stakes so they can sit on both sides of the management-labor negotiating table. What a way to restructure!
So, what’s up? One Wall Street Journal editor wrote that the White House simply hates the internal combustion engine. I’ll buy that. It seems to be doing everything it can to place spark plugs in museums next to the buggy whips. Good luck.
However, I will go a big step further. There are two more important items on the presidential plate than running a car company. One is a cleaner environment. The other is renewable energy. Thus GM is all about selling small, fuel-efficient cars.
However, there is a hitch. It is very difficult to make a profit selling small cars. But governments are not concerned with making profits. Now I get it. Clever.
Still, I have two questions. Who is going to sell these “green” cars when half of the dealers are gone? And who will buy small when we buy big every chance we have?
But don’t worry, the sun will come up tomorrow and the free market will return. With freedom there is no tar.
– Column by David Reynolds