The United States’ biggest car maker General Motors is preparing to file for bankruptcy next Monday. Many analysts believe that following government intervention it is inevitable. RIA Novosti caught up with Lee E. Ohanian professor of economics at UCLA to find out his views on GM and the prospects for its bankrupcy.
"It’s a difficult situation. Once the government got in place. The bankruptcy is essentially offering a more attractive option to bondholders then the non-bankruptcy option that GM offered bondholders. It’s unfortunate. I do have some reservations about how the government intervened in the process of both General Motors and Chrysler. My own personal view is that the company either can compete or it can’t compete. And if it can’t compete then those productive recourses should be put to use by other entrepreneurs. In the United States, now, there is a problem of what we call “to big to fail”. So, I believe the Obama administration has invested a lot of cash in GM. Probably, on the basis that they perceive GM to be “to big to fail”. The unfortunate part is that GM in its current makeup is no longer a competitive car industry. They took certain risks, they did not pay off for them, they were not managed well for many, many years, and perhaps the most important issue that has not really so excited in the media is that this problem was a long time in the making. Roughly, it is a thirty five year process of various governments, both Democratic and Republican administrations that essentially cut protectionists deals with GM, and Chrysler, and Ford. The American auto-industry was protected against foreign competition for many, many years. It was in the companies’ interests and the workers interests to be protected. It was, probably in the government’s interest to have them protected, but it was not in consumers’ interests to have them protected. More recently those companies have been subject to much greater competition. In my view, because they were protected for so long, they became uncompetitive and now that they are subject to competition they find that they no longer can be effective in competing with Toyota, and Honda, and Nissan. So, when you ask is it fair, no I don’t think it is fair but at some level the unfairness of the whole process extends back many decades".
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
