The nationalization of two of North America’s largest automotive companies may have many sociopolitical effects, the extent of which is not yet known. Of course, this is not strictly what is happening: the U.S. and Canadian governments are intervening simply to keep the companies alive, and mandating a new business structure perhaps simply under the guise of ensuring it does not happen again.

Such a system, of course, suggests that capitalism doesn’t work — or at least that it doesn’t work quite as intended. The government intervenes in the free market to tell the free market how to remain successful, decide what its future direction should be, and tells it that it will replace the position of the financing establishment and provide capital to meet its goals (so long as it does what the government wants). All because the company fits under the all-too-familiar guise of “too big to fail” — why, exactly, General Motors is too big to fail (even if we were to strategically intervene and have it fail gracefully) is somewhat unclear.

The company, which employs 250,000 people worldwide, came into trouble in late 2008, announcing sometime in December that it did not expect to survive past 2009 with the current funding. Discussion of bankruptcy, particularly that of Chapter 11 filing rose heavily, while the rest of the auto industry — especially Chrysler LLC — upheld similar suffering. The U.S. Senate voted against any form of bailout package — an idea for recovery supported by both then-President Bush and President Obama. Despite the legislative process rejecting the idea, President Bush approved a bailout plan for General Motors near the end of December, offering General Motors and Chrysler a cumulative $13.4 billion in financial support from the Treasury’s allocated Troubled Assets Relief Program, as well as an additional $4 billion for the future.

General Motors went on to declare the near largest loss in the history of automobiles — $31 billion. Market conditions showed gigantic losses for the entire industry, though none even remotely incredible as those of GM; Toyota marked its first loss in the history of the company. This wouldn’t be the first time for General Motors to grossly under perform the rest of the industry, however — in 2005, one of the best years for automotive sales ever — General Motors posted a $10.5 billion loss (Toyota posted a $2 billion profit in the same year).

Yesterday, the Obama administration’s restructuring plan called for Rick Wagoner to immediately resign.

It’s not that the U.S. automotive corporations didn’t keep up with the times, or didn’t build cars people wanted — quite the opposite is true. Western world energy policy has historically been low-cost gas: which encouraged people to want to drive larger more powerful vehicles, with little regard for environmental language and the gas costs associated — then, a number of events in recent years have caused both a market shift in gas prices and a social shift in environmental consciousness, effectively debunking the entire business plan. Overseas automotive manufacturers — who probably had the advantage of an earlier shift (or even a non-existence to begin with) away from larger cars, have successfully competed with all the new U.S. regulation and other legislation; though many jump quick to the subsidies which state-level governments have provided to these companies in recent years to attempt to spark interest in domestic production, indeed roughly $3 billion in tax breaks and subsidies have been provided over the last decade.

A UCS USA report said that while the company sells 23 distinct models which get better than 30 miles per gallon (highway), this number counts hatchback, sedan and coupe models of each car as multiple models — when using the more fair highway/city blend the EPA recommends, Toyota becomes the winner and General Motors falls to second last. Even more environmentally dubious, measured using the city numbers — which General Motors does not market — the company holds the winning place for selling the most cars which achieve less than 15 miles per gallon.

While undoubtedly a superstructure and secular shift away from gas-guzzling Hummers towards the more environmentally conscious mindset is a factor, labour regulations have been equally significant. The United Auto Workers and the Canadian Auto Workers alike have hugely dependent and cumbersome contracts with the corporations, building webs of complicated contractual obligations creating higher overhead and management problems. Furthermore, a hyper-saturation of models, brands, and product differentiation has clearly created a web of distributors with higher costs and lower productivity than normal.

Today, it seems rather disingenuous for President Barack Obama to suggest that, in fact, the plans submitted by the automobile industry were no good, and to even imply that bankruptcy should be the current plan-of-action. Maybe it is politicking, maybe it is not — the public, or at least the political establishment outside the President’s office seems to be, in many ways, against the bailout; will the extension of the deadline for a second revised business plan allow the automobile industry to win the President’s affection and continue the bailing out? Only time will tell.

The plan as it stands today — assuming the new business proposals do not become reality, is for General Motors and Chrysler to both split in to two companies. ‘Bad’ General Motors, which would absorb all the troublesome assets and liabilities, such as health costs (for retirees — a problem within itself) and debts, and ‘Good’ General Motors, which would retain all the assets of value. A similar structure would be achieved with Chrysler, who, if all goes according to this plan, would be sold to Fiat SpA. It is likely that the ‘Good’ General Motors would be divided up between old creditors, current shareholders and current United Auto Workers members, in an effort to somewhat restore value to the shareholders who have been damaged as of late.

The Fiat deal, some industry analysts suggest, is at more risk than Chrysler would like shareholders to know: “We are pleased that Chrysler, Fiat and Cerberus have reached agreement on a framework of a global alliance, supported by the U.S. Treasury,” announced Chrysler followed shortly by a backtrack to “a number of ’substantial hurdles’ are still to be jumped” before reaching the final deal — the details of what these “substantial hurdles” are, is unclear at this point but most are confident that the deal will eventually be closed.

Additionally, the United Auto Workers union would be required to agree to a new contract under the new ‘Good’ General Motors, one where the monopoly power of the employees may result in suboptimal conditions yet again. Additionally, the retirees, who are currently dependent on General Motors for their health and living expenses, may find themselves dependent on a bankrupt ‘Bad’ General Motors for a long time while a buyer is sought for the assets which are left in the effectively defunct company.

It seems that the original aim of a revised business plan is one that has caused nothing but heartache and frustration for the officials on Obama’s team — saying today that they would in fact prefer to go ahead with the current plan. In an attempt to keep all the recent news and the support of a bankruptcy solution from catastrophically defeating the company, President Obama announced that warranties on vehicles made by General Motors and Chrysler, if the companies were to become defunct, would be guaranteed by the U.S. government.

GM’s trading 25 per cent down today, at $2.70 a share, while Fiat is down about 10 per cent.

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