The World

General Motors

The death of General Motors has been a long time coming. Of course, the idea is that GM is not dying – it is just taking a long rest under public ownership, before springing back to life as a fighting-fit private firm. Lots of people are sceptical that things will be quite that simple.

My own personal scepticism is fed by a memory of visiting GM’s Saturn plant in Tennessee, back in the early 1990s, when Saturn was touted as the new marque that would rescue GM. It was making zippy new Japanese-style cars in a new plant, well away from Detroit. But now Saturn is one of the GM brands that is to be scrapped, in the government-led re-organisation of the firm. The point is that GM has had lots of rescue plans and re-thinks, conducted under much more favourable circumstances. Why does anyone think that this latest government-led rescue will be any more effective – particularly given the global recession and worldwide over-capacity in the car industry?

But the attempt to rescue GM could do a lot of damage in the meantime. The Obama administration says that it will take a hands-off approach to the management of the firm. There will be government money, but no government-imposed strategy. The trouble is that once billions of dollars of tax-payers money are committed, it will be all but impossible for the government not to meddle. The results will be bad for the free market and bad for global trade.

In today’s FT Wolfgang Munchau points out that the rescue of GM’s European arm runs counter to the principles of a single European market. The rescue of GM’s North American operations is likely to do further violence to the cause of cross-border trade and investment. In theory, GM’s bosses will be allowed to make their own strategic decisions about the business. But what if they decide that they want to expand a plant overseas – in Mexico, for example – and close one in Detroit? How would Congress feel about tax-payers’ dollars being spent like that? Whatever the official rhetoric, the bail-out of GM is implicitly protectionist.

ps Read my colleague John Gapper’s blog: Barack Obama can have the Chrysler he wants