Monday, April 27, 2009

Government Motors?

Dear Mr. President,

There is much talk in the news of late regarding the possibility that the government might take a large equity share in GM. As you were a professor of Constitutional law, could you direct me to that part of the Constitution that authorizes such action?

Please note that I ask out of genuine confusion. I am not merely a right-wing extremist who believes in the enumerated powers doctrine. As a business attorney, I am perplexed.

For example, at the moment I am in my room in Franklin, Tennessee, the home of Nissan Motors, USA. If the proposed deal goes through, will Nissan be competing with General Motors or Government Motors? The conventional wisdom in Tennessee is that Nissan enjoys a cost advantage over GM because Nissan uses non-union labor. What would prevent the government from protecting its investment by requiring unionization of auto plants?

Which leads to another question: Who will regulate the regulators? Would CAFE, EPA and vehicle safety regulations apply to the products of the new Government Motors? Would specific state regulations, such as those in California, be trumped under the Federal Preemption Doctrine?

Or, to whom will management be accountable? You may recall a decade or so ago when the GM Board rather abruptly fired Roger Smith from his position of CEO. The Board was exercising its prerogative - dismissing an executive who had delivered disappointing results. Presumably you, or your successors, could remove an individual CEO who roles out a series of flops, but what of a president who appoints a series of disappointing executives? Board members can be held to answer to shareholders. Indeed, the directors may be PERSONALLY liable in the correct circumstances. Public officials, however, face no such exposure. Who would we, the taxpayer/shareholders name in a derivative suit?

I am also mindful of past experiments with government-owned auto companies. Look what government control did for MG and Jaguar.

Are setting out on a road that dead-ends in East Germany, circa 1968, in which the only car available is the car decreed by the government, no matter how lousy that car may be? I fear you might find the back seat of a Trabant rather cramped.

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