Obama’s French auto bailout

Gov­ern­ment Mo­tors buys a stake in sput­ter­ing Peu­geot

The Washington Times Daily - - Opinion -

Ron­ald Rea­gan said, “The most ter­ri­fy­ing words in the English lan­guage are: I’m from the gov­ern­ment and I’m here to help.” Gen­eral Mo­tors is learn­ing that les­son the hard way. Now that GM is a ward of the state af­ter be­ing bailed out by Un­cle Sam, it has to drive for­ward with all kinds of bad busi­ness schemes pushed by Washington bu­reau­crats, such as the ex­pen­sive, elec­tric Chevy Volt con­sumers don’t want. The lat­est wrong turn is GM’S move to buy a large stake in trou­bled French au­tomaker Peu­geot. The tax­pay­ers who bailed out GM just got sold a lemon.

This is a bad deal on its face. Gov­ern­ment Mo­tors is pay­ing $420 mil­lion to get 7 per­cent of Peu­geot, which, like GM, has been strug­gling to make fi­nan­cial ends meet for years. Peu­geot lost $578 mil­lion and sales were down 8.8 per­cent in 2011. There’s no mys­tery why. Any­one who spends any time across the At­lantic knows these French rides are marred by medi­ocre per­for­mance, iffy qual­ity and unin­spired styling.

On top of that, Europe’s econ­omy is tee­ter­ing on the brink of col­lapse, which has re­sulted in a 15 per­cent to 20 per­cent de­cline in car sales over the past five years. Euro­pean auto sales dropped nearly 10 per­cent last year alone. Oner­ous la­bor laws mean car­mak­ers can’t lay off work­ers and it’s dif­fi­cult to close fac­to­ries so sup­ply can’t be ra­tioned to match de­mand. This dy­namic leads to costly ex­cess ca­pac­ity that Busi­nessweek pegs at 20 per­cent.

With its Opel and Vaux­hall brands, GM has lost over $14 bil­lion in Europe since 1999, ac­cord­ing to the Wall Street Jour­nal, and $747 mil­lion last year alone. It makes no sense to dou­ble down on a los­ing mar­ket and ex­pose the com­pany and U.S. tax­pay­ers to even more Euro­pean prob­lems.

GM’S spin is the deal will al­low the two com­pa­nies to in­crease ef­fi­cien­cies and save money by shar­ing car plat­forms and re­search-and-de­vel­op­ment costs. We’ve heard this story be­fore. Seven years ago, GM had to pay Italy’s Fiat (which now con­trols Chrysler Corp.) $2 bil­lion to an­nul a re­la­tion­ship that sounded an aw­ful lot like the one it’s now en­ter­ing into with Peu­geot. The deja vu sce­nario is rem­i­nis­cent of ex­pan­sion prob­lems that plagued GM in the past. For decades, the world’s largest au­tomaker suf­fered from hav­ing too many di­vi­sions with over­lap­ping prod­uct lines and not much to dis­tin­guish them from one an­other. In­stead of cut­ting back, GM grew even more and con­tin­u­ally added new brands, cre­at­ing Saturn and Geo in the 1980s while pur­chas­ing Saab and Hum­mer and wast­ing re­sources on myr­iad joint ven­tures that didn’t last or make a profit.

GM wasn’t alone. Merger ma­nia in­fected the cor­po­rate world in the 1990s, and most ex­ec­u­tives bought into the trendy idea that in­dus­tries needed to con­sol­i­date and com­pa­nies had to merge with com­peti­tors to sur­vive. Lots of those mar­riages failed. Ford Mo­tor Co. has stepped back the most, un­load­ing pres­ti­gious lux­ury brands Jaguar, Land Rover, Volvo and As­ton Martin to fo­cus on re­build­ing its main blue-oval brand. Un­for­tu­nately, GM hasn’t learned the same lessons from past mis­takes and is ex­pand­ing again. It’s hardly sur­pris­ing smart busi­ness de­ci­sions aren’t be­ing made with gov­ern­ment bu­reau­crats and union bosses call­ing the shots at GM. Now even more prof­its will be sur­ren­dered be­cause of a coun­ter­pro­duc­tive al­liance with the French.

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