Taking the Wheel of Auto Industry

The U.S. government isn't the first to take a big stake in the auto industry during perilous economic times.

Governments in France and Germany took over Renault and Volkswagen in the aftermath of World War II and still have substantial ownership of those automakers.

And the British government spent billions trying to save carmaker British Leyland during the listless 1970s, before it went out of business the following decade.

Now, as the Obama administration embarks on the path of ownership already tread by Europeans, officials are stressing that they did it reluctantly, and that they will sell the shares - bought for $65 billion in loans and other assistance - as quickly as possible.

"The government did not want to be an owner of General Motors," Ron Bloom, a member of President Obama's auto task force, told reporters Monday. "It was the only entity that could put forth that capital."

Yet even if it had allowed the automakers, General Motors Corp. especially, to collapse in a chaotic liquidation, the government would have been left with a huge tab, several economists said.

Whether the Obama White House wanted to own 60 percent of GM and 8 percent of Chrysler L.L.C. is irrelevant now. It changes nothing about the knotty circumstances the government faces, given the inherent conflicts between what is good for the business and what the voters want - most often jobs.

"The role of the government has become suddenly complex," said Kent Hughes, director of the Science, Technology, America, and the Global Economy program at the Woodrow Wilson Center in Washington. "It must act as lender, owner, regulator, and strategist," with responsibility for national policy - such as more fuel-efficient vehicles - that might run counter to short- or medium-term profitability.

Nevertheless, Hughes - pointing to a long history of complicated relationships between government and important industries - said he did not think that government ownership "need be the drag that seems to be the easy assumption."

Others are far more skeptical and expect that government ownership in the auto industry could go on far longer than is touted in the best-case scenarios. (Five years is an oft-cited time frame.)

"Evidently, the politicos like having a say in what goes on where a lot of employment is involved. Even if they can get out, they don't," said Gerald C. Meyers, a University of Michigan business professor and former chief executive officer of American Motors Corp., which he merged into Renault S.A. in 1982.

That was when the French government still owned 100 percent of Renault. The merger did not go well, and AMC was sold to Chrysler in 1987.

"We were not compatible with what the French government wanted, namely creating employment for French people," Meyers said.

That ethos remains a force in France, as was evident early in February, when the country's biggest carmakers, Renault and Peugeot Citroen, got $8.4 billion in below-market-rate government loans after promising not to shut plants or fire people in the country.

In March, Renault, still 15 percent owned by the French government, said that to boost production of its Clio model, it would add jobs temporarily at a plant north of Paris rather than in Slovenia, where most Clios are made.

In Germany, the state of Lower Saxony owns 20 percent of Volkswagen AG (until 1988, the West German government owned an additional 16 percent). And as Volkswagen and Porsche now are negotiating a merger, Lower Saxony, where Volkswagen is based, has been throwing its weight around.

For example, the top government official there said recently that he favored Wendelin Wiedeking, the current chief executive of Porsche, to head the combined company if the merger happens.

"You don't want that," said Nariman Behravesh, chief economist at IHS Global Insight Inc. "Why should politicians be involved in what should be fairly hard-nosed business decisions?"

Some observers expect the worst for the U.S. auto industry under government control.

"Business decisions will be decided on political grounds, which will be a disaster," said William S. Peirce, a retired economics professor at Case Western Reserve University in Cleveland. "The question of which plant to close or which plant gets to build the great new product is especially subject to political pressure, because each plant is in a different congressional district."

U.S. Rep. John Dingell offered a preview along these lines last week, when he dashed off a letter demanding to know why a transmission plant in Ypsilanti, Mich., was scheduled for closure.

In another example of such pressure, the United Auto Workers and its supporters successfully protested GM's plan to import small cars from its operations in China.

"We, quite frankly, put pressure on the White House, the task force, the corporation" to bring that production to the United States, UAW president Ron Gettelfinger acknowledged on PBS's NewsHour With Jim Lehrer on May 28.