Analyst Predicts U.S. Policy Makers Will Favor GM, Chrysler

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Management Briefing Seminars

TRAVERSE CITY, MI – Government ownership of General Motors Co. and investment in Chrysler Group LLC will lead to policies favoring those companies, predicts Sean McAlinden, the chief economist for the Center for Automotive Research.

While the leader of the White House’s Automotive Task Force, Ron Bloom, repeats emphatically that the Obama Admin. policy is to sell its investment as soon as practical, McAlinden doesn’t believe it.

“Government participation…will result in national champions, and policy will replace competition, because they have a vested interest,” he says at the 2009 Management Briefing Seminars.

All China’s big auto makers are owned by the state, and China policy aims at consolidating them so that a handful can compete in the world. Lower Saxony in Germany is a controlling investor in Volkswagen AG, and Germany has defended a law, challenged by Europe, which protects Lower Saxony’s equity position.

But McAlinden uses Renault SA as his example. France took over the company in 1946, because the owner had collaborated with the Nazis. France still owns 15%, and Renault credits the government holding with giving the company stability, without fear of a hostile takeover.

McAlinden is not against the investment by the U.S. and Canada of more than $100 billion in the auto industry.

“Without that money, commitment and support, we would have lost two of our three auto firms,” he says.

McAlinden: Policy will replace competition.

Had they simply disappeared, a lot of the lost production might have been replaced by other companies, he adds, “but we’re not sure how or when.”

Employment and production at GM and Chrysler has dropped, “but they exist,” he says, “and Ford (Motor Co.) may grow bigger.”

Government intervention is not unprecedented, McAlinden notes. It is involved in every sector of industry, from agriculture to airlines. Autos are regulated on safety, fuel economy, site environmental policy, trade, highways and the legal tort system.

Simple human nature means ownership of auto makers will affect federal policies, impacting competition.

“How can the government resist favoring its own companies?” he asks.

While Bloom promises here the White House will keep its hands out of the day-to-day business of GM and Chrysler, McAlinden points out Congress has no such compunction, and it already has tried to intervene in dealer downsizing and cash for clunkers.

Dave McCurdy, president and CEO of the Alliance of Automobile Manufacturers group, notes Congress introduces 1,500 bills a year affecting the auto industry.