GM - Government Motors

Somewhere along the way, the administration and its Automotive Task Force thought it could do a better job and decided to run these companies. The discharge of Rick Wagoner, former CEO of GM, by the Task Force, without even consulting GM's board, was the "shot heard round the world" announcing that the feds were in control. Since then they have made four mistakes, which will profoundly affect the future of the automotive industry in this country.

--Chrysler was merged with Fiat instead of with GM. At the expense of the American taxpayer, Chrysler was given as a present to a foreign car company. This was done because a GM-Chrysler merger would have opened the door to cost-saving synergies through plant and workforce consolidation, which the UAW found unacceptable.

--The Task Force failed to get a competitive labor agreement from the UAW. Although some of the worst abuses, like the JOBS bank, subsidized Viagra and overtime pay without 40 hours work, have been "suspended," no active employee has suffered any reduction in base hourly pay, health care or pension. The UAW continues to control numerous sourcing, product and investment decisions, such that GM cannot put on an additional shift in Mexico without the UAW's permission.

--The administration's decision to dramatically toughen the CAFE laws, just at this time of industry weakness, will hurt GM and Chrysler in their areas of strength (full-size SUVs, minivans and pick-ups) and force them to compete head-to-head in the hybrids and small cars where the Japanese dominate. Toyota is already in its third generation of the Prius. Meanwhile, the Detroit Three have never made money with UAW labor on small cars, and this is unlikely to change just because of CAFE mandates. This subordination of business to social objectives can also be seen in the government's "performance metrics" for Fiat to be handed more shares of Chrysler, such as introducing a 40 mpg car, profitable or not.

--Finally, the government, in a burst of hubris, has gone from its necessary role as a creditor to that of majority owner. It could have taken preferred stock and given some ownership in GM to the former shareholders and some more to the bondholders. The preferred dividend could have been rolled over until GM could pay, and the shares could have been convertible to equity if the creditors failed. Instead the administration went for a so-called "total equity wipeout" and squeezed $27 billion of bonds down to 10% of new equity. The administration has now maneuvered itself into a "you broke it, you bought it" position, from which it cannot easily retreat.

While both Presidents Bush and Obama were initially correct to provide short-term liquidity to GM and Chrysler, the Obama administration and the Automotive Task Force have subsequently lost their way. Their errors, arising from a Masters of the Universe over-confidence, coupled with a Big Government, Big Labor, Big Green social agenda, will keep GM and Chrysler as a dependent, taxpayer-supported wards of the state for the rest of the Obama administration, and probably beyond.

Logan Robinson is a professor of law at the University of Detroit Mercy. He is the former general counsel of ITT Automotive, Delphi and Metaldyne, and the former head commercial and international lawyer for Chrysler.