The government is now the overseer of GM. The CEO has been replaced at the President’s request and a government panel will now have veto power over strategic business decisions. Some may wonder why this is a bad thing. The argument is that tax dollars saved the company and therefore the government should have a say in how it is run. If only the world was that simple.

The reality of the situation is that politics and business are now intertwined. The government is now invested in GM. If GM fails, government money will be lost. If GM succeeds, politicians will have more money to do what politicians do…spend more money.

The government is already in the business of writing regulations that effect all the automobile companies. The Congress just recently increased the CAFE standards to 31 mpg. That will effect auto companies differently. Companies with smaller more efficient lines may not be effected at all. Companies that derived big profits from large autos may need to spend billions of dollars to redesign and retool. CAFE standards are not the only regulations with such wide sweeping effects. There are safety and air pollution standards as well. California is trying to ban black cars because they require extra energy to cool in the hot sun.

If the government is vested in an auto company, then their political decisions can give their chosen companies an advantage. The treasury department is pushing GM to eliminate their largest vehicles, trucks and SUVs, even though they are the profitable lines. Maybe you can already see where this is leading? If GM has a smaller line of cars and the government increases the CAFE milage requirements again, then GM has an advantage. GM will make money due to an unfair advantage and the politicians will look like heros for saving jobs and reducing our deficit.

The downside is felt by the independent auto companies and  consumers. The other companies are left guessing what the government will do next. It costs billions to retool an auto company. They will be left following the government sponsored companies. Overtime, this will lead the independent companies to failure or government sponsorship. In the end, consumers will have less choices and more expensive cars.

The government has already tried and failed at government sponored enterprises. Their biggest failure was Fannie Mae and Freddie Mac. These companies turned into a pasture for politicians. Many Democrats (like White House Chief Of Staff, Rahm Emmanual) made millions of dollars working for these companies(LINK)…as Fannie Mae cooked their books, wasted money and eventually dried up leaving the tax payers with the bill. When it all came to light, their misdeeds were swept under the rug by the politicians that created the system and made millions. Think back to the Enron scandal. If Enron was run by friends of Democrats, you can bet that Ken Lay’s name would be anonymous, not synonymous with crook.

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