Will Small Be Beautiful for GM?

Michigan's Orion plant has become a symbol of government run amok in the auto industry.

HENRY PAYNE

Orion Township, Mich.

On July 5, 1984, President Ronald Reagan joined General Motors Chairman Roger Smith at a dedication ceremony opening Orion Assembly, a sprawling plant off of Interstate 75 north of GM's Detroit headquarters.

America's largest auto maker was then emerging from the most severe downturn since the Great Depression and a decade of punishing federal fuel-economy regulations that gave Japanese auto makers an edge.

The Orion plant was a symbol of the U.S. auto industry's rebirth as GM invested $50 billion in state-of-the-art facilities world-wide.

Associated Press

"Let our competitors take note today: The American automobile industry is back," Reagan thundered to a building full of auto workers. "You've demonstrated when the chips are down, what people can do working together freely, rather than at the dictates of some central planner or bureaucratic mandate of government. I happen to believe the last thing your industry needs is the federal government bringing in outsiders to tell you how to run your business. . . . We immediately moved to reduce the regulatory burden . . . and I'm proud to say, we made a special effort on behalf of the auto industry, saving you hundreds of millions of dollars."

Twenty-five years later, GM is again at a crossroads. And again Orion is the focus of its future plans.

This time, however, a very different White House led by President Barack Obama and his Auto Task Force is calling the shots. This time, Washington is telling GM how to run its business. This time, the Orion plant is a symbol of government regulation run amok as Washington keeps GM on life support so that it will produce the cars Washington wants to build.

On June 1, GM Vice President for Global Manufacturing Gary Cowger announced as part of the company's bankruptcy filing that it would close the Orion facility in its drive to become a "leaner, stronger and more flexible" company. Though still a relatively modern facility making midsize Chevy Malibu and Pontiac G6 sedans, Orion's once 5,000-strong labor force had shriveled to 1,200 as the recession ravaged sales and the company planned to eliminate its Pontiac brand and consolidate Malibu production at a Kansas City facility.

But a few weeks later, the company reversed course. GM now says it will retool Orion to make compact, gas-sipping cars. The change of heart says a lot about how GM's new owners -- the federal government owns 60% of the company and the United Auto Workers (UAW) owns 17% -- are making considerations other than profitability a top priority for the auto maker.

The Obama administration is increasing Corporate Average Fuel Economy (CAFE) mandates to 35.5 mpg for all vehicles in a company's fleet by 2016, up from 27.5 mpg for cars and 23 mpg for light trucks now. Not a single GM vehicle meets the new CAFE standard, so the company is scrambling to make new high-mileage cars.

It was planning to build a new compact car in China (it already works with Daewoo to make the tiny Chevy Aveo in South Korea). Most auto makers have similar arrangements -- profit margins are so low for compacts made in America that not a single auto company makes a compact inside the U.S. Not the Japanese. Not the Koreans. And not even Ford, which plans to make its new Fiesta in Mexico.

But the UAW insisted that GM build its compact stateside and along with the Obama administration forced the company to agree to build a new green car somewhere in the U.S. as a condition for exiting bankruptcy.

This is a mistake that will only make it harder for GM to make good on the president's pledge that it will repay every penny of the $50 billion in federal loans it recently received. Why? Because auto makers make a slim $1,500 per vehicle profit, on average, on small cars. The profit margin on SUVs can be $5,000 or even $7,000.

One reason for the small margin on small cars is that compacts occupy a tiny niche of the market. Gasoline is relatively cheap in America, so those interested in buying fuel-sipping autos often base their buying preferences on environmental or political considerations, or they are particularly sensitive to the variable price of gasoline. There aren't enough of these people, Center for Auto Research analyst Kristin Dziezek told me, to allow auto makers to develop models with varying pricey features that drive up profit margins.

In Europe, things are different. There gasoline costs 100% to 200% more than it does here, so there are a lot of buyers who make fuel efficiency their No. 1 priority.

GM says that once its Orion plant is turning out compact cars, it can increase its small car sales to 100,000 units a year. But that claim seems dubious because its current compact, the Aveo, sold just 55,000 units in 2008. The critically acclaimed Honda Fit sold 80,000 units last year. Only the class-leading Toyota Yaris has sold 100,000 vehicles.

However, there is one way to make building small cars in America pay off -- through government subsidies.

There is a provision in the 2007 Energy Bill that allows the Energy Department to dole out up to $25 billion to domestic auto makers to pay for, as the bill spells out, "the cost of re-equipping, expanding, or establishing manufacturing facilities in the United States to produce" low-mileage vehicles. Ford has already been awarded $6 billion in such loans. With its new plans for Orion, GM will likely get its own slice of that pie.

Also, once it was clear that GM planned to build compacts somewhere in the U.S. a bidding war broke out between Michigan, Tennessee and Wisconsin -- all of which had GM plants slated to be closed. Michigan won by giving away the store. The Orion plant will get $1 billion in tax incentives and job training grants from the state, which will pay for the $800 million GM will spend on retooling.

GM insists that business factors alone drove its decision. But in the era of Government Motors, there's reason to be skeptical. Speaking to reporters recently, GM North America President Troy Clarke made an environmental, not an economic, argument for building small cars at Orion. He said that the new plans for the plant would help GM's "efforts to become the greenest car company in the world."

While acquiescing to the demands of its two major shareholders -- Washington and Big Labor -- GM did get concessions of its own. The UAW will allow the company to pay a majority of workers at Orion lower, "second-tier" wages of $14-$16 an hour with no pension benefits. That will make Orion's wages competitive with the non-union Kia plant in Georgia (which makes SUVs).

Outgoing car czar Steve Rattner insisted recently that "We are not going to micromanage or get involved in day to day decisions" at GM. Americans can take him at his word. That is, assuming they overlook Washington's tight grip on a bankruptcy process in which the UAW demanded that the company make a green car in the U.S. that is designed to meet Washington-mandated mileage standards in a plant that makes Washington-favored cars so that GM can get billions in Washington-issued funds.

Mr. Payne is a writer and cartoonist for The Detroit News.

Promises, Promises - Will Obama Deliver?

On his recent trip abroad, President Barack Obama declared that the United States could not impose its values on other nations. But what if we were actually complicitous in undermining our fundamental values elsewhere?

One could argue that American corporations, such as Dell and Hewlett-Packard, would be abetting censorship if they acquiesced to China's recent demand that all personal computers sold in that country be equipped with software that allows government officials to block access to Web sites that disseminate "unhealthy information."

The software, called "Green Dam-Youth Escort"—in this case, "green" does not signify the innovative, virtuous, environmental kind of soft tyranny we like—is designed ostensibly to filter out sexually explicit sites, but in reality, it will allow China to monitor Internet use, ban political sites, and collect personal information.

Wouldn't these companies, in effect, be aiding the Communist regime in its attempt to gain unprecedented control of information on the Internet?

Yes and no.

This is not the first time American corporations have yielded to Chinese censorship demands. Several online search engines, including Google and Yahoo, already are complying with "censorship requests" from China—no searching for "Falun Gong" or "crackdown in Tiananmen Square"—and other similarly freedom-resistant nations.

The trouble for the Communist nation is that Internet users have rather effortlessly gotten around the "Great Firewall of China." And if history is any indication, ingenuity will prevail once more. If we've learned anything as a free people, it's that you can't keep the masses from their pornography—or, on occasion, even the truth.

But if we believe that the U.S. has no business imposing its values on other nations, why would we expect corporations to spread the good word?

Some critics have presented the issue as a straightforward choice between corporate "profits" and enlightened "principle." (Profit, predictably, being the immoral choice.) Which is technically true. But what if profit is the constructive way to advance our principles?

The 40 million personal computers sold in China last year, many of them in the hands of once-isolated people, will do more to liberalize that nation than any government sanction or well-intentioned protest we could concoct. When, after all, has any policy of isolation or trade restriction helped spread democracy or undermine tyranny?

It won't surprise onlookers that around the 20th anniversary of the military crackdown in Tiananmen Square, Internet users across China had problems accessing popular networking sites, such as Twitter, MySpace, Hotmail, Yahoo, and many others.

In areas all across China, these sites allow people to interact, exchange ideas and grievances, plan political opposition, or simply discuss frowned-upon topics. Across China, users openly complained and speculated about the reasons for the shutdown, which in itself is a sign of growing independence.

To combat this kind of Internet liberty, China's government utilizes more than 30,000 censors. It deploys unknown thousands of true believers, who troll Web sites and affix positive and fawning comments about the Communist Party on message boards and Internet discussions.

Twitter Will Set Them Free

How profit-seeking businesses advance democratic principles in China

David Harsanyi

The more computers China has the more censors they'll need. The more computers the Chinese use the more difficult it will be to control the flow of information.

One would hope that American companies engage the Chinese government and do all they can to protest and avoid policies that undermine fundamental American values, such as freedom of speech, abroad. If their consciences won't let them do business in China ... oh, whom am I kidding?

Selling the 298 million Internet users in China sub-par American computers is the best way to advance our values. Even better, we won't have to "impose" a thing.

David Harsanyi is a columnist at The Denver Post and the author of Nanny State. Visit his Web site at www.DavidHarsanyi.com.

Will Nonproliferation Make Us Safer?

Populism

Will there be blood?

From The Economist print edition

The revival of American populism is partly synthetic, but mostly real

A WEEK or so ago America was seized by a spasm of fury over the bonuses paid to executives at AIG, a troubled insurance company. Across the country Americans were enraged that people who had helped to cause the financial meltdown were being rewarded for their incompetence. And Washington responded in kind.

Congressmen queued up before the television cameras to tell everybody how upset they were. Larry Summers, the president’s chief economic adviser, described the bonuses as “outrageous”. Even Barack Obama tried to drop his ultra-cool persona to say how “angry” he was. The House voted overwhelmingly to impose a 90% tax on such bonuses.

The media responded to the storm of outrage by producing a stream of articles on American populism—the political disposition that damns established institutions, from Wall Street to Washington, and tries to return power to “the people”. Newsweek devoted almost an entire issue to the subject.

But no sooner was the ink dry on these articles than the populist storm seemed to blow itself out. Many of the journalists who had been fanning the flames of anger attended a white-tie Gridiron Dinner in Washington on March 21st to perform silly song-and-dance routines. Wall Street rallied two days later when the treasury secretary, Tim Geithner, published his plan to tackle toxic assets held by banks. Steny Hoyer, the House majority leader, suggests that bonus legislation “may not be necessary” now that 15 of the top 20 “bonus babies” at AIG have agreed to give their bonuses back.

Was the fuss over AIG a sign of a new populist mood in America? Or was it just a storm in a teacup? It is hard to answer this question in a country in which anger is a form of entertainment and where the political parties have turned partisanship into a fine art. Television personalities such as Bill O’Reilly are always angry about something or other. Many of the politicians who proclaimed their outrage at the “malefactors of great wealth” are delighted to take campaign contributions from the very same malefactors.

But, for all that, there are good reasons for taking the resurgence of populism seriously. One is the breadth of the discontent in the country. Left-wingers complain that Mr Obama is selling out his supporters in order to rescue irresponsible financial institutions. Right-wingers worry that he is using taxpayers’ money to save people from the consequences of their own profligacy. This fear has plenty of resonance outside the world of political enthusiasts: a recent Harris poll shows that 85% of Americans believe that big companies have too much influence on politicians and policymakers.

Another factor is the size of the slump. America has lost almost 2m jobs in the past three months. The number of job openings is down 31% from a year ago. Consumer confidence is falling on all fronts. Mortgage delinquencies are at a record high. The future of attempts to stimulate the global economy is also in jeopardy: European leaders have implied that they will oppose pressure from Americans and Chinese to produce their own stimulus programme at the forthcoming G20 meeting.

America may be witnessing the return of an old-fashioned version of populism, driven by economic anxiety and directed at economic interests. The people who gave the name to “populism” in the late 19th and early 20th centuries were worried about a prolonged agricultural depression and furious at the vested interests in Wall Street and Washington who, they thought, were responsible for that depression. Populists accused the elites of turning America into a land of “tramps and millionaires”.

This brand of populism went underground during the boom years, but Franklin Roosevelt revived it during the Depression. In one of his most passionate speeches, in 1936, he attacked the “economic royalists” of big business and the Republican Party.

In the 1960s economic populism was trumped by cultural populism. The Republican Party championed the interests of the “silent majority” against bra-burning feminists, civil-rights activists and effete liberals who were more interested in protecting the rights of criminals than preserving law and order. The Democrats made desultory attempts to revive economic populism in 2000 and in 2004: Al Gore campaigned for “the people against the powerful” and John Kerry denounced outsourcing companies. But this proved to be no match for the Republicans’ cultural populism. Now economic populism is returning to the heart of American politics.

This economic populism is made particularly potent by the long-term decline of faith in American institutions. The General Social Survey has been polling Americans about their confidence in major institutions (among other things) since 1972. The preliminary data for 2008 show a marked drop in confidence in every American institution since 2000 except military ones and education. The proportion of people expressing “a great deal of confidence” fell from 30% in 2000 to 16% in 2008 for big business, from 30% to 19% for banks, from 29% to 20% for organised religion, from 14% to 11% for the executive branch and from 13% to 11% for Congress. It was up, to 52%, for the armed services. These figures are the stuff that nasty movements are made of.

Populism poses serious problems for both political parties, not least because the very institutions which they spend their lives squabbling over are some of the least respected in the country, just above television and the press. The danger for Mr Obama and the ruling Democrats is that the administration is relying heavily on private investors and Wall Street banks to implement its various rescue plans. This inevitably means rewarding some of the people who were responsible for the crisis. The president hopes that his budget will channel destructive anger into support for his policies. But he could also find his administration blown off-course or even swept aside by popular outrage.

Populism

Will there be blood?

The revival of American populism is partly synthetic, but mostly real

A WEEK or so ago America was seized by a spasm of fury over the bonuses paid to executives at AIG, a troubled insurance company. Across the country Americans were enraged that people who had helped to cause the financial meltdown were being rewarded for their incompetence. And Washington responded in kind.

Congressmen queued up before the television cameras to tell everybody how upset they were. Larry Summers, the president’s chief economic adviser, described the bonuses as “outrageous”. Even Barack Obama tried to drop his ultra-cool persona to say how “angry” he was. The House voted overwhelmingly to impose a 90% tax on such bonuses.

The media responded to the storm of outrage by producing a stream of articles on American populism—the political disposition that damns established institutions, from Wall Street to Washington, and tries to return power to “the people”. Newsweek devoted almost an entire issue to the subject.

But no sooner was the ink dry on these articles than the populist storm seemed to blow itself out. Many of the journalists who had been fanning the flames of anger attended a white-tie Gridiron Dinner in Washington on March 21st to perform silly song-and-dance routines. Wall Street rallied two days later when the treasury secretary, Tim Geithner, published his plan to tackle toxic assets held by banks. Steny Hoyer, the House majority leader, suggests that bonus legislation “may not be necessary” now that 15 of the top 20 “bonus babies” at AIG have agreed to give their bonuses back.

Was the fuss over AIG a sign of a new populist mood in America? Or was it just a storm in a teacup? It is hard to answer this question in a country in which anger is a form of entertainment and where the political parties have turned partisanship into a fine art. Television personalities such as Bill O’Reilly are always angry about something or other. Many of the politicians who proclaimed their outrage at the “malefactors of great wealth” are delighted to take campaign contributions from the very same malefactors.

But, for all that, there are good reasons for taking the resurgence of populism seriously. One is the breadth of the discontent in the country. Left-wingers complain that Mr Obama is selling out his supporters in order to rescue irresponsible financial institutions. Right-wingers worry that he is using taxpayers’ money to save people from the consequences of their own profligacy. This fear has plenty of resonance outside the world of political enthusiasts: a recent Harris poll shows that 85% of Americans believe that big companies have too much influence on politicians and policymakers.

Another factor is the size of the slump. America has lost almost 2m jobs in the past three months. The number of job openings is down 31% from a year ago. Consumer confidence is falling on all fronts. Mortgage delinquencies are at a record high. The future of attempts to stimulate the global economy is also in jeopardy: European leaders have implied that they will oppose pressure from Americans and Chinese to produce their own stimulus programme at the forthcoming G20 meeting.

America may be witnessing the return of an old-fashioned version of populism, driven by economic anxiety and directed at economic interests. The people who gave the name to “populism” in the late 19th and early 20th centuries were worried about a prolonged agricultural depression and furious at the vested interests in Wall Street and Washington who, they thought, were responsible for that depression. Populists accused the elites of turning America into a land of “tramps and millionaires”.

This brand of populism went underground during the boom years, but Franklin Roosevelt revived it during the Depression. In one of his most passionate speeches, in 1936, he attacked the “economic royalists” of big business and the Republican Party.

In the 1960s economic populism was trumped by cultural populism. The Republican Party championed the interests of the “silent majority” against bra-burning feminists, civil-rights activists and effete liberals who were more interested in protecting the rights of criminals than preserving law and order. The Democrats made desultory attempts to revive economic populism in 2000 and in 2004: Al Gore campaigned for “the people against the powerful” and John Kerry denounced outsourcing companies. But this proved to be no match for the Republicans’ cultural populism. Now economic populism is returning to the heart of American politics.

This economic populism is made particularly potent by the long-term decline of faith in American institutions. The General Social Survey has been polling Americans about their confidence in major institutions (among other things) since 1972. The preliminary data for 2008 show a marked drop in confidence in every American institution since 2000 except military ones and education. The proportion of people expressing “a great deal of confidence” fell from 30% in 2000 to 16% in 2008 for big business, from 30% to 19% for banks, from 29% to 20% for organised religion, from 14% to 11% for the executive branch and from 13% to 11% for Congress. It was up, to 52%, for the armed services. These figures are the stuff that nasty movements are made of.

Populism poses serious problems for both political parties, not least because the very institutions which they spend their lives squabbling over are some of the least respected in the country, just above television and the press. The danger for Mr Obama and the ruling Democrats is that the administration is relying heavily on private investors and Wall Street banks to implement its various rescue plans. This inevitably means rewarding some of the people who were responsible for the crisis. The president hopes that his budget will channel destructive anger into support for his policies. But he could also find his administration blown off-course or even swept aside by popular outrage.