We’ll have a Car Czar

As part of their bailout plan for the U.S. auto industry, Congress was going to set up a board of its members and other federal officials to tell the companies what they can and cannot do. That was bad enough. Now Congress is planning to appoint a single individual to oversee the auto industry, a so-called “car czar.” From the Washington Post:

Democratic leaders continued working on details of their proposal this morning, and they made at least one change at the administration’s request. Instead of establishing a board from among six federal agencies to oversee an auto industry restructuring, Democrats agreed to the appointment by President Bush of a single “car czar,” according to a senior Democratic aide, who spoke on condition of anonymity because the measure is not yet final.

Under the proposal, which Democrats hope to bring to a vote this week, the loans would go out on Dec. 15, and the car czar would then develop broad restructuring goals for the auto industry, the aide said. On Feb. 15, after the Bush appointee had been replaced by President-elect Barack Obama, the czar would assess the companies’ progress and could pull back the loans. Long-term restructuring goals would be due from the car companies by March 31.

Friends, is it right for the state to issue fiats to privately-owned companies? Is it good economic policy to run a company according to government commands rather than the private market? I know, this is the price of a government bailout. But this cannot be worth it. This is not just socialism; it’s national socialism.

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  • The state has been issuing fiats to these companies for a while now. If a company goes to congress with their hand out they have to know they are making a deal with the devil. Is it right? No. Is it worth it? No. Apparently the people that think Pelosi, Dodd, and Frank can run a car company better than the private sector think it’s worth the pain that is sure to follow.
    This will all end badly.

  • Manxman

    This really isn’t that much different from all the EPA environment bureaucrats/czars that tell businesses & private property owners what they can do with their property. It is a large and obvious step toward our lives being totally controlled by powerful, unelected bureaucrats we can’t do anything about (like get rid of), but it’s really nothing new.

  • WebMonk

    Exactly as above have stated – these fiats have been around for a long time now. It most certainly can be profitable for the company to agree with the fiats in return for various benefits.

    Companies cannot be fundamentally interested in solving large-scale issues except insofar as it impacts their bottom line. That means that it will almost ALWAYS be better for the individual company to take the various governmental controls along with the government money.

    This will typically be bad for the industry/economy as a whole, but the individual companies aren’t particularly concerned with that until it starts to impact them. At which point, the chances are very good that it will be too late for them to change to catch up with whatever competitor has managed to better position themselves in the economy.

    This is going to be, literally, a textbook example in 20 years – how GM, Ford and Chrysler took government money to survive and profit, but didn’t change the underlying problems. In 20 years (assuming there isn’t some even more massive govt bailout), they will be used in economic textbooks and case studies as examples of how companies failed to adjust to the market and instead used govt funds to limp along until they finally became so small that the govt didn’t bail them out.

  • Joe

    If what I heard on the drive into work this morning is accurate, this is a significant change. The Car Czar will have the authority to review and veto any proposed transaction valued over 25 million dollars. So this is not just a regulation or a gov’t mandate as usual, it is active control of business decisions by the state.

    Think of that. Ford decides it can save 26 million by closing a plant that produces a vehicle that is not selling well and is already produced in another plant. The gov’t will get the final say. Just think of all of the non-business reasons that a gov’t official would not close the plant.

  • This is not going to be a good thing. I don’t care how big they are. Let them fall.

  • Peter Leavitt

    Obama in a news conference raised the question in a news conference what a viable American auto industry would look like. The Wall Street Journal in an editorial suggested that he take a look at Toyota, which is not regulated by the Japanese government, places plants that pay well in states that don’t unduly favor unions, has four basic models, comparatively few dealerships, and made 17 $billion last year.

    Maybe the benighted Congress should pass a law requiring the BigThree and UAW board member to read and prepare for an exam on The Toyota Way by Lieber and Meier and The Reckoning by Halberstram that tells the Nissan story.

  • rlewer

    Dodd and Frank can do to the auto industry what they did to Freddy Mac and the loan industry. Then they can blame it on Bush.

  • Jon

    Dr. Veith, do you have insights to share from the perspective of vocation? I’m thinking of the concept that when people try to act outside of their vocations, then things often go awry. I realize that millions of jobs are at stake here, but I just don’t see a government takeover of the auto industry (is that an exaggeration?) ending well.

  • They’ve done such a good job with Amtrak and the Post Office. Why not? (j/k)

  • Joe at #4 said “Just think of all of the non-business reasons that a gov’t official would not close the plant.”

    I’ve served at three Army bases that were supposed to be closed due to realignment. As soon as the list came out, the yelling started and they were removed from the list. The last base was saved for the sake of 12,000 people. We were told that the little town just couldn’t survive without the base. Multiply that little town times whatever factor you wish to get what will happen to the big three if they try to make any adjustments under this foolish car czar nonsense.

    Can’t we all imagine how the evening news would cover this knowing that a bureaucrat can just step in and keep a plant open continuously?

  • FW

    i am still left wondering why they didnt allow a chapter 11 bankruptcy reorganization. The government still could have guaranteed new car warrantees and done other similar things to avoid a general panic. with a bankruptcy trustee, all the things mentioned above could be neatly avoided, and also union contracts and labor relations could be brought into line with what toyota enjoys in it´s USA plants.

    I understand that the BIG issue. not really explained by the media, is the enormous cost of maintaining pensions and benefits for retirees. I really haven´t seen or heard how anything short of a bankruptcy filing will fix this problem. I understand that it is THE fundmental problem that makes the american automotive cost structure non-competative globally.

    anyone here have more on this or confirmation of this as the basic issue here?

  • BrianPaul

    Fascism anyone?

  • Bill

    Can Bush appointment anyone he wants? Does it require confirmation? I’d love to see him appoint someone who was totally against the entire loan in the first place. I nominate Jason Lewis (KTLK FM) or Walter E. Williams from George Mason.

  • Joe

    Frank – there is a small group of GOPer’s (maybe some Dems too?) pushing for a structured Ch. 11 bankruptcy. The idea being that they would line up most of the reorg. financing before filing and with gov’t guarantees. This idea (in my mind) makes the most sense but every time I hear anyone suggest it the conversation devolves into “we can’t let them dissolve all the jobs will be lost.” I think most people don’t understand that bankruptcy does not equal dissolution of the corporation and the media is not really doing much to help people understand that point.

  • WebMonk

    FW, I’m right with you. Doing some work to ensure that if/when the companies declare bankruptcy that the bankruptcy is Chapter 11 – that sounds REALLY good to me.

    What Joe said.

  • Frank, Chapter 11 is not being allowed because it would force the UAW to accept normal pay rates, which are about $25/hour below what their members are currently getting. To prevent it, people are arguing that Chapter 11 would put millions out of work, which anyone who has ever actually watched a bankruptcy unfold knows is flat out false.

    Yes, I am accusing Congress of being utterly ignorant of the bankruptcy laws they created. And I’m right, sad to say.

  • Joe

    Bike – I hope it is ignorance because the alternative is that they are intentionally mistating people with regard to the effects of Ch. 11.

    I am in 8th commandment overdrive on this one …

  • Good point, Joe. OK, I’ll say it; given that they’re mostly Ivy Leaguers with law degrees, I can’t assume they’re ignorant anymore. They’re most likely flat out lying.

    Thanks. I think.

  • December 10, 2008 Stat of the Day

    In 2007, Toyota sold 9.37 million vehicles.

    In 2007, General Motors sold 9.37 million vehicles.

    In 2007, Toyota made $17.1 billion.

    In 2007, General Motors lost $38.7 billion.

  • Joe

    Hey Juan – are those real numbers? If they are, I would love to know where you found them.