Both GM and Chrysler have entered bankruptcy as of June 1, 2009.  People with common sense have argued for six months that this was a required, necessary and inevitable outcome.  Neither company had a sustainable balance sheet or cost structure.

Two Presidents, the Treasury and Congress simply defied the obvious in pursuit of various political agendas.  The Government gave GM and Chrysler billions of dollars for the sole purpose of preventing bankruptcy.  That goal has failed and all of the money spent in pursuit of it has been wasted.

The stated rationale for the Government intervention was that the auto makers were “they were too big to fail” and if they did the damage to the economy would be severe.  Six month later we will get to test these protestations.  It is curious though that these same politicians are no longer predicting economic collapse now that the inevitable has arrived.  These people were either lying or are incompetent. 

The Government now owns substantial stakes in GM and Chrysler.  The Government can not effectively run a business because it is the antithesis of efficiency, competition, flexibility, responsiveness and profitability.  Its goals are purely political, its source of revenue confiscatory and its interests lie in reshaping society in the image of politicians. 

The Government will use its influence over the auto industry in an attempt to realize social agendas.  These may include increased salaries and benefits for union workers, the construction of more fuel efficient green cars, the enthusiastic adoption of CAFE Standards or some other political pursuit.  None of these goals are consistent with GM or Chrysler becoming profitable. 

An excerpt from today’s WSJ illustrates this point:

“The Administration concessions to the UAW also restrict the company’s ability to import smaller, more fuel-efficient cars that it already makes oversees.  UAW President Ron Gettelfinger boasted on PBS’s “Newshour” last week that “we, quite frankly put pressure on the White House, the [auto] task force, the corporation” to bar small-car imports from overseas.”

GM already makes small cars more cheaply abroad, but will be prevented by the Government from importing these products for the benefit of the union not for the Company.  This is protectionism for political gain in defiance of the goal of a successful GM. 

Government attempts to forestall GM and Chrysler’s bankruptcy were a disastrous waste of time and money.  Government arguments that such bankruptcies would devastate the economy were absurd, illogical and exaggerated.  But the worst is yet to come.  Government directives and Labor Unions effectively eroded the viability of these companies.  Imagine the state of GM and Chrysler after several years of being owned and run by the very institutions that destroyed them.