Sunday, June 28, 2009

Why Chrysler and GM are Doomed to Fail

Why Government Can't Run a Business by John Steele Gordon in The Wall Street Journal offers a great op-ed on why a government owned business is doomed to fail. History has shown that governments are ineffective at running a business. The reason for failure? Simply, government is run by politicians and politicians make political decisions, not economic ones, which are required to be successful in a business.

The Chrysler and GM bankruptcies and reorganizations already demonstrated that political reasons, instead of economic (and perhaps rule of law) reasons were the basis for many of the decisions. I can't see any other reason for the government giving so much to the labor unions and so little the debt holders, who have priority in a typical bankruptcy proceeding.

Previously, I didn't have much hope for Chrysler and GM surviving, given that the companies were failing during relatively good economic times. Now that the government has significant ownership in both companies, I expect Chrysler and GM will become zombie companies, run by political priorities, e.g. producing green cars no one wants to buy, and a drain on the taxpayer's money.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

1 comment:

Clever Dude said...

You're right about the "cars no one wants to buy", but part of that is just stigma associated with the brands and brand saturation. Now that GM shed a few brands, hopefully it can focus on a core product, not one copied 4 times (although they're still doing it across Chevy, Buick, Cadillac and sometimes GMC).

Ford def has a leg up because they've been successful in their European offerings and are finally bringing them over here (and not in a sub-brand offering like GM did with Opel/Saturn). But only time will tell for all of the brands. Chrysler needs to hurry up with the Fiat 500 though!