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Car Czar: Can Government Run a Car Company?

With a $15 billion "loan" package for Detroit automakers teetering on an uncertain future in the U.S. Senate, let's drift back to this idea of a "car czar" who would protect taxpayers' interests.

There is nothing new about government intervention in struggling industries: airlines, Silicon Valley, railroads, and the auto industry itself (remember the Chrysler bailout?) have all benefited by U.S. government intervention in times of crisis. Amtrak is owned by the government-run National Railroad Passenger Corp: its preferred stock is held by the federal government, and its Board appointments are made by the U.S. President and confirmed by the Senate. (BTW, Amtrak has been in financial distress much if its government-owned life.)

But even so, this idea of a car czar has brought many observers up short. Of course the CC won't make styling choices or decide which cars to produce, at least not directly, but the potential job responsibilities as outlined by the Associated Press do include:

  • Authorize loans to car companies to keep them afloat.
  • By Jan. 1, develop measures that assess the progress of each company toward long-term restructuring.
  • Broker agreements on long-term restructuring plans with employees and retirees, trade unions, creditors, suppliers, auto dealers and shareholders.
  • Have the power to convene meetings of industry stakeholders and would report to Congress at least twice a month on the progress of the talks.
  • Have the power to examine company books, papers, records and other data.
  • If the companies fail to author viable restructuring plans by the end of March, the czar will submit his or her own blueprint to Congress for a government-mandated overhaul.
Some argue these powers are approximately the same as those wielded by a bankruptcy judge. And even the Detroit Free Press has editorialized in favor of naming a strong overseer.

But there is a fundamental difference between a bankruptcy judge and a position anointed by the President of the United States: politics. Do we really want a political appointment (the czar will be named by the current president but report to the next) ruling on what a "viable overhaul plan" for the industry would look like? Do we really want this person deciding how "green" the New Detroit needs to be.

According to Harvard Business School professor Nancy Koehn, the government's plan is historic in sweep. Talking to the Christian Science Monitor, Koehn says: "With the exception of World War II, I cannot recall another instance where government was going to step in and regulate issues such as executive compensation or the use of corporate jets."

In the same CSM piece, Joan Claybrook, president of Public Citizen, says, "It's not quite nationalization of our auto industry, but it's getting there."

What do you think? Is a car czar a necessary ingredient to enforce car makers to do the right thing?

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