Thanks for Visiting, Sorry about the Cars

Wherever else the status quo ante may reign, the Obama administration has brought change to the tradition of sending foreign dignitaries home with lovely parting gifts. Back in September, the chairman of China's legislature was dispatched with a new set of tire tariffs. Now, German Chancellor Angela Merkel has been sent home with an auto jobs program that won't start.

This latest gesture flows from the U.S. government's majority ownership stake in General Motors. GM is a global company and its empire includes ownership in a European subsidiary, Opel. Half of Opel's 50,000 employees are in Germany. Thus, when GM was facing bankruptcy this spring, the German government took a strong interest. It offered a $2.2 billion loan to help Opel survive and preserve German jobs.

If the administration is truly eager not to run a car company, it could always divest.

The Obama administration guided GM through bankruptcy and on to a distinctive ownership structure. U.S. taxpayers now hold a 61 percent stake in GM, with an additional 17.5 percent stake granted to the United Auto Workers. The bankruptcy process concluded in early July, at which point GM set about trying to become lean and mean. One aspect of that was a move to sell Opel to a Russian-backed Canadian group called Magna.

What does any of this auto arcana have to do with foreign policy? Aren't these just the obscure fiddlings from the back of the business pages? Well, consider the level at which this has been handled in foreign governments. In August, when GM was still pondering whether to sell Opel to Magna:

German Chancellor Angela Merkel expressed her regret at General Motors' failure to choose a buyer for its German unit Opel, and said that a decision was "urgently" needed for the carmaker's future.

German Foreign Minister Frank-Walter Steinmeier was on the phone with his U.S. counterpart and reported, "Secretary Clinton said she would communicate the German government's position within the U.S. administration."

That sounds a lot like a foreign policy issue. There's more. After announcing its decision to sell Opel to Magna in September, GM's board reversed itself yesterday. Here was some of the commentary from abroad:

"General Motors' behavior toward workers is completely unacceptable," German Economy Minister Rainer Bruederle told reporters the morning after GM's shock news, adding: "General Motors' behavior toward Germany is completely unacceptable."

In Moscow, Russian Prime Minister Vladimir Putin hinted the battle for carmaker Opel was not over . . .

President Obama has made clear that he never aspired to run a car company and would like to get out of the auto business. But the administration is in the same position as an absentee landlord of a rundown property--responsible, like it or not. The promises that GM would be run in a hands-off, all-business fashion have not been credible either to members of Congress or leaders abroad. (This is not the only uncomfortable aspect of GM's awkward ownership structure; GM's minority owners, the UAW, recently refused to cut costs for GM's private-sector competitor, Ford. Imagine.)

If the administration is truly eager not to run a car company, it could always divest. Sen. Lamar Alexander (R-TN) put forward a plan to do just that in July. It was voted down in the Senate, with leading Democrats explaining that the time was not right. That raises the question of just what the administration is waiting for. Unless the government plans further infusions of cash into GM, or plans to intervene in GM's decision-making, what benefit could there be to holding on to the company and inviting unwelcome domestic and foreign pressures?

One possibility is that the government is better able to predict GM's worth than the market. Perhaps the administration's financial seers believe they can time the recent run-up in stock market prices and ride it further with their $60 billion bet on GM. Alternatively, the divestment delay may just serve to hide the ultimate cost of the administration's auto intervention.

Whatever the reason, the entanglements deepen. The administration has been asked to provide further billions for GMAC, a key financier of car purchases (formerly known as General Motors Acceptance Corporation). Overseas, the Chinese have launched an investigation of U.S. auto subsidies (the pot calling the kettle red?).

And we still have the issue of German Opel angst. Perhaps this is why President Obama declined Chancellor Merkel's invitation to travel to Germany to celebrate the anniversary of the Cold War's End. Maybe he was worried about what she'd give him in return.

Philip I. Levy is a resident scholar at AEI.

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About the Author

 

Philip I.
Levy
  • Philip I. Levy's work in AEI's Program in International Economics ranges from free trade agreements and trade with China to antidumping policy. Prior to joining AEI, he worked on international economics issues as a member of the secretary of state's Policy Planning Staff. Mr. Levy also served as an economist for trade on the President's Council of Economic Advisers and taught economics at Yale University. He writes for AEI's International Economic Outlook series.

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  • Email: philip.levy@aei.org

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