In our increasingly government-controlled (-manipulated, -throttled, -ridden) economy, we get to see how people who do not believe in the free market expect the engines of American capitalism to run.
It’s not like we haven’t been able to see this before. After all, the 20th century is littered with the corpses of Command and Control Economies.
But this is the first (second: FDR tried really hard too with the alphabet soup of government agencies he successfully wielded to lengthen the Great Depression far beyond what it should’ve been) time we get to see what happens when our own beloved economy is ridden by the government to extremes we’ve not seen before.
Exhibit A is GM. Now bankrupt and after accepting huge loans from the government, the government will shortly own a majority of this company.
And now the revisionist history begins.
Today’s Bloomberg report on the bankruptcy, paragraph 1:
General Motors Corp. won court approval on its first day in bankruptcy to sell assets as soon as next month after collapsing under $172.8 billion in debt and failing to adapt to consumer demands for smaller cars.
All well and good except for one thing: Consumers are not necessarily demanding smaller cars.
Google “best selling cars” and you get a pretty consistent picture: trucks are selling well, and so are full-size sedans. The only compact cars in the top 10 of any list are the Honda Civic and Toyota Corolla, and they’re in the middle of the list. In the worst 10 selling lists are bloated SUVs such as the Hummer. No surprise there.
Green machines (hybrids and ultra-compacts) have always been a lethargic segment of the auto sales and they’ve suffered as much as anybody else with the economic issues.
The Bloomberg article was reworded shortly after initial press this morning and has dropped the bit about demand for small cars. (you can still find the original wording at this splog (spam blog) site that rips headlines to create content for itself. Not actually linking to prevent follow spam: http://itsp.info/index.php/2009/06/02/gm-bankruptcy-judge-approves-asset-sale-on-first-day-bloomberg.html).
One of the major plans of the now government owned GM is to increase production of one of the most lethargic segment of vehicle: ultra-compacts and small hybrids. From Bloomberg again:
One idle GM facility in the U.S. will be retooled to make small, fuel-efficient cars as part of an agreement with union workers, GM said May 29.
Now what kind of business is run by making cars for which there currently isn’t a real market?
Especially for a company emerging from bankruptcy, this kind of action is pointless and worse.
Unless the leadership of that company is aware of changing market conditions well beyond the awareness we’ve seen to date, or they know something we don’t.
Unfortunately for what appears to be the deepest desire of most the leadership in the Obama administration: you cannot control demand so long as there is choice.
The only way communist countries control demand is by controlling the entire market. And even when presented with only one option, they still usually get to choose whether or not to take it.
Because the government will very likely own 60% of GM, they will be very interested in one or both of these two options: running the company according to the ideology, and making a return on their investment.
The ideology of the current government makes those two options almost completely exclusive. You cannot control the market and demand in what is still, essentially, a free market.
My prediction: GM will continue hemorhaging money. Lots of money.
Our tax dollars will continue to be poured into the black hole of stagnating demand segments and poorly made vehicles.
Until the price fixing monopolistic unions are torn free and GM is free to hire talent at wages the market supports…
Until GM recognizes the necessity of meeting the market where it is instead of where it ought to be according to some Command Economy wet dream…
Until the free market is allowed to destroy those who do not adapt and innovate…
…We will continue to be force to send good money after bad. And we’ll be told we like it.