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How Obama Inherited the Colin Powell Rule

When Sweden refuses to bailout Saab and the French prime minister scolds the U.S. for excessive government spending the world …

When Sweden refuses to bailout Saab and the French prime minister scolds the U.S. for excessive government spending the world is truly upside down. The problem with government involvement in private industry is the confusion it creates. Take the latest twist in the government’s  bailout of the auto industry.

The Obama administration has given GM CEO Rick Wagoner the boot as condition for receiving additional bailout money. Regretably this  is something GM’s board should have done much earlier, not because he is a bad executive but because he just didn’t move quickly enough. The trouble is, will the Obamians also fire UAW’s Ron Gettelfinger? Wagoner cut costs but never confronted , the 800 pound gorilla in the room–the high healthcare costs GM has to pay to retirees which make their vehicles $3,000 more expensive to build than cars made by non-U.S. based manufacturers. How he could continue to act as though this fact could be avoided will unfortunately serve as his closing epitaph as GM’s last independent leader. But since the UAW and its leadership represent the other party to this ruinous agreement why shouldn’t they be fired too?  Perhaps the UAW’s endorsement of candidate Obama in June 2008 and the campaign contributions that followed might have something to do with it.

The trouble is that President Obama, whether he likes it or not, is now subject to the General Colin Powell Rule—if you break it you own it. (Powell borrowed the term from Pottery Barn when counseling President Bush about potentially invading Iraq.) Well, GM is officially broke and now that the Obamians  are tinkering with the org chart they own it. I hope Rahm Emmanuel  is brushing up on his product development and consumer brand marketing skills—oops, he doesn’t have any—and come to think of it no one in this administration has worked in private industry or had to produce a product or service anyone would pay money to have. Hmm. Bit of a problem, that.

One would think the government might delay the imposition of the recently announced increase in Corporate Average Fuel Economy (CAFÉ) standards. By a strange coincidence these standards were introduced only days before the latest bailout plans. This  mandate adds $50 billion in new research and development costs over the next five years. Such imposed costs reduces choices even in a good economy  and could be a lethal blow in times such as these. It’s as if the government holds out one hand in salvation and  wields a rapier in the other ready to slit its throat. But one shouldn’t expect to anyone in government connect the dots between excess regulatory burdens over the years that Congress imposes and the auto industry’s current predicament. That would be too easy.

Better to give GM and Chrysler an antitrust waiver to combine with each other or anyone who will have them. Either that or let a structured bankruptcy see its course. With the prospect of tax dollars coming in  suppliers, dealers, unions and bondholders are reluctant into entering auto contracts because no one wants to renegotiate a contact if the government might be there to cover losses.  

I’ll wager that had they a chance to do this over both GM and Chrysler would not have gone to the government for money. And Ford is counting itself lucky it didn’t have to. It is becoming clearer day by day that the bailout itself is an impediment to the industry restructuring itself.

About JP Donlon

JP Donlon
JP Donlon is the Editor-in-Chief of Chief Executive magazine.