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Motown Wonders: Where Did Our Love Go?

A Commentary By Froma Harrop

Thursday, June 04, 2009

The alternative to a government rescue of General Motors is the collapse of the industrial Midwest. Nonetheless, there's been a surprisingly large amount of dumping on the Chapter 11 bankruptcy plan. The government-sponsored deal seems to have stirred up resentments for every ideology.

From the left, former Labor Secretary Robert Reich asks why the Obama administration doesn't instead spend the money retraining GM workers to do "something useful," such as building light rail cars. Oh, is America finished with the automobile? I hadn't noticed. In any case, why can't Americans make both light rail cars and automobiles?

On the right, Logan Robinson, a law professor at the University of Detroit Mercy, deems this "a Big Government, Big Labor, Big Green reorganization, which I think is going to make it very tough for GM to compete against the world-class competition it faces in the Toyotas and Hondas of this world."

Also coming from the right, Allan Meltzer, an economist at Carnegie Mellon University, sees GM as simply hopeless. "GM failed the market test," he says. Story over.

Megan McArdle, a free-marketeer for theatlantic.com, says that the plan will merely "preserve these old jobs making cars that people don't necessarily want."

Old jobs? People have been making bread since Biblical times, but there are still jobs for bakers. The point of this agony is to create a company that makes cars people want.

True, GM lags in creating fuel-efficient vehicles, but that doesn't mean it can't catch up. It is preparing to launch the GM Volt, a plug-in hybrid in 2010.

Meanwhile, sales of the Ford Fusion, which comes in a hybrid version, were up 9.4 percent in May over the same month a year ago. Sales for the competing Nissan Altima fell 47 percent. If Ford can do it, why couldn't a restructured GM?

Meltzer worries that government involvement would "weaken the capitalist mentality in this country." Currently a visiting scholar at the American Enterprise Institute, he would have preferred a Chapter 11 bankruptcy without taxpayer participation.

"Chapter 11 doesn't mean all the plants are going to close and all the people are going to lose their jobs," he explains. But who the heck would buy a car from a bankrupt GM without the government behind it (and its warranties)?

Meltzer is sure of heartache ahead. "The rest of us (taxpayers) are going to be paying large sums of money," he says. And "they (GM) are not going to make an adjustment and tomorrow be producing cars that people want to buy."

But he doesn't really know that.

John Paul MacDuffie, a business professor at the University of Pennsylvania's Wharton School and an auto industry expert, is "cautiously optimistic" about the plan. He was concerned about a timid approach. On the contrary, four of the eight GM brands are being dropped and the workforce cut further, along with its gold-plated benefits. He sees the new GM better able to compete with foreign makers.

MacDuffie's fear of political influence in the business decisions has not been realized. "Today there were a lot of plant closings that would not have been possible," he says, if politicians were running the show.

The government's role should make the bankruptcy resolve more quickly, MacDuffie adds. If all goes well, the plan will raise GM's capitalization, and the government can sell its shares.

For the industrial heartland, the matter goes beyond the fate of General Motors. It's about the survival of the steel, glass and plastics industries that supply Detroit. More Americans work for the suppliers than for the "Big Three."

If this doesn't work out, then it's on to Plan Z. Given the stakes for Michigan, Ohio and Indiana, the dice must be rolled.

COPYRIGHT 2009 THE PROVIDENCE JOURNAL CO.

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