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Critic Blasts Plan to Rescue U.S. Carmakers
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Critic Blasts Plan to Rescue U.S. Carmakers


Critic Blasts Plan to Rescue U.S. Carmakers

Critic Blasts Plan to Rescue U.S. Carmakers
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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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Peter Morici, professor of logistics, business and public policy at University of Maryland's Smith School of Business, opposes a government bailout for General Motors. He says without a viable plan for future profitability, neither GM nor other Detroit automakers should get help.


There are people who oppose a GM bailout and who say, let Detroit fail. One of them is Peter Morici, an economist who teaches at the University of Maryland's School of Business. Professor Morici, why not come to the aid of a carmaker that employs tens of thousands of people, and some would say much more than that in related companies?

Professor PETER MORICI (Logistics, Business and Public Policy, Robert H. Smith School of Business, University of Maryland): Well, General Motors doesn't have a clean turnaround plan. When we helped out Lee Iacocca's Chrysler, Iacocca had a plan to make the company competitive again, and he succeeded. Rick Wagoner who leads General Motors at this time has had several plans to turn around GM, and they've all failed. Essentially, General Motors brings product to market too slowly at too high a cost, and its production costs are too high. A bailout doesn't solve the problem unless the taxpayer wants to get in the business of sending cash to General Motors every year to subsidize its payroll.

SIEGEL: If in fact the federal government had expected that much of the banks, would they be investing money right now? There seem to be a lot of banks that are improvising and don't have a clear plan for what they're going to do.

Professor MORICI: The bailout of the banks was necessary, but the Treasury demanded too little of the banks. And I expect that within a few years, several of them will be in trouble again. If we're going to assist banks, car companies, or whatever because they are large employers or they're vital to the economy, they have to have good plans to make themselves permanently vital so that they can continue to contribute to the economy without additional aid.

SIEGEL: But at this point, GM is in a different situation from, say, Chrysler back in 1979. And that Chrysler didn't face the global credit crisis that GM does right now. What alternative does GM have? You can't very well say, well, go to the credit markets and get some money to tide you over. Nobody's lending.

Professor MORICI: Even if we did not have a global credit crisis, I doubt that General Motors would be able to borrow much more money. General Motors has had one turnaround plan after another over the last 10 years. None of them have achieved results. It's been in a constant downsizing mode, and it's getting to the point where no one really expects all three of the Detroit automakers to be around long term. The question is which one fails? That shouldn't be the one that doesn't get a federal check.

SIEGEL: Should it be a condition or a de facto condition of support for GM that Mr. Wagoner should go?

Professor MORICI: I don't know that that should be a de facto condition. I think that the condition should be that General Motors bring forward a plan to bring its labor costs in line with the Japanese automakers making cars right here in the United States and let it demonstrate that it can use that aid to bring to market a reasonable portfolio of products to address the nation's energy conservation needs so that going forward it will be able to sustain its market share.

SIEGEL: But in a way, you're asking the federal government to do something that might be a little bit above their pay grade, which is to figure out whether GM has a good enough line of cars that could roll out in a couple of years to make it more competitive in the domestic car market.

Professor MORICI: Well, it wasn't about the federal government's pay grade to make an evaluation with regard to Chrysler. That was a very successful program. In the end, the federal government made some money because it got warrants which became common shares, and it sold, and it got paid back all the money that it was owed. My feeling is it's up to General Motors to define a plan that is viable. The federal government alone doesn't have to assess that. There are plenty of folks outside the car industry that are keeping a close eye on General Motors that could provide some indication of whether it makes sense.

SIEGEL: Just one last point, though. Have you found yourself at all taken by the example of Lehman Brothers, which was not bailed out, and everybody thought at the time that that was a great stand in favor of moral hazard? In the days since, people have thought perhaps that was the wrong move. Perhaps we unplugged the entire world financial market by being erratic as to who got help and who didn't.

Professor MORICI: I don't know that we necessarily made a mistake with Lehman Brothers or that what followed would not have followed in any case. If it wasn't Lehman Brothers, it would have been someone else. Our banks are fundamentally unviable the way they are. They have a lot of bad paper on their books, and it's not just the subprime problem. They have many, many problems. My feeling is that sooner or later, Lehman Brothers would have come apart given the quality of management that it had.

But moreover, we can't use the Lehman Brothers events as an excuse to subsidize every company or every large company that finds itself in trouble, or we're literally going to be in a situation where people are free to make profits if they're smart and the government's going to pick up their losses if they're not. That makes no sense for running a market economy.

SIEGEL: Professor Morici, thank you very much for talking with us.

Professor MORICI: You're quite welcome.

SIEGEL: It's Peter Morici of the University of Maryland's School of Business. And now we'd like to know what you think. Should the government bail out the auto industry? There will be a live debate on tomorrow at 3:00 p.m. Eastern time. Get your comments and questions ready.

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