Friedman: Put 'Government Master' In Charge of Automakers

It's not like Barack Obama is a socialist or anything. It's just that Thomas Friedman wants him to put a "government master" in charge of the country's biggest manufacturing sector. Friedman made his modest proposal in his New York Times column of today, and expanded on it during a Morning Joe appearance. [H/t reader Tom.]

Video also available here.

I've got three easy reasons why Friedman's idea won't work.

JOE SCARBOROUGH: They can't fail, right? Is that true? Detroit: we can't allow GM, Ford, Chrysler to fail?

THOMAS FRIEDMAN: But can we make them succeed?


FRIEDMAN: I think that's the question.  And I think the only way to do this is by basically saying to the leadership of all these companies: you're gone, the boards are gone, the equity's gone.  We're going to name a government master to come in here, and we're going to set certain standards: 4% mileage improvement per year for the next ten years.  Whatever standards you want to set.  But you're going to get this money not to be bailed out, but to be transformed.

In his column, Friedman provides more detail of what he has in mind, approvingly quoting a column in the Wall Street Journal on Monday by Paul Ingrassia, a former WSJ Detroit bureau chief [emphasis added]:

In return for any direct government aid, the board and the management [of G.M.] should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp G.M. with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company ... Giving G.M. a blank check — which the company and the United Auto Workers union badly want, and which Washington will be tempted to grant — would be an enormous mistake.

To Ingrassia's proposal, Friedman writes that he:

would add other conditions: Any car company that gets taxpayer money must demonstrate a plan for transforming every vehicle in its fleet to a hybrid-electric engine with flex-fuel capability, so its entire fleet can also run on next generation cellulosic ethanol.

The notion of a receivership is well known in bankruptcy and has its merits.  The ability to nullify union contracts would be welcome. Those contracts have dragged Detroit down with health care obligations adding hundreds to the cost of every car compared to its non-union foreign car competitors with manufacturing operations in the US.

Even so, here's my starter list of reasons why the Friedman/Ingrassia proposal wouldn't work:

  • Friedman would force manufacturers to drastically increase mileage and make every car a hybrid.  The larger, more powerful vehicles have traditionally been the most profitable.  But Detroit would be denied the ability to even compete in that sector.  Say thank you, BMW, Toyota, et. al.
  • Friedman's master would be "non-political."  Good luck with that.  Friedman spent much of his time today lambasting the politicians who have "helped" Detroit so much over the decades that they've now nearly killed it. With billions of dollars and millions of jobs and votes at stake, does anyone really imagine the pols won't put their paws in?
  • The master would "revamp G.M. with a viable business plan."  You mean that viable business plan that's been sitting there quietly on the shelf all these years that the automakers have willfully ignored?  If there was a business genius out there with a plan in his back pocket that could save the industry, surely GM would have found him and paid him millions to work his magic.

Friedman's faith in a government bureaucrat, subject to the pressures of his political masters, doing what the free market couldn't, is touching but a bit naive.

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