The Smeal Executive MBA Team Blog

In exchange for further assistance from taxpayer-funded federal loans, the White House is forcing Rick Wagoner to resign from his post as chairman and CEO of General Motors. The Wall Street Journal calls the move “one of the most dramatic government interventions in private industry since the economic crisis began,” and Smeal’s Terrence Guay agrees. But, Guay says, “It is perfectly acceptable.”

More from Guay:

Financiers—be they commercial banks, the IMF, or private equity groups—always attach strings, or more accurately “conditions,” to their loans. It should be no different for the U.S. government. If taxpayer money is being loaned to a private company, the government should have every right to attach conditions to it, including changing GM’s management team. 

Wagoner’s almost nine-year tenure as CEO has done little to improve the fortunes of the company, and has arguably made them worse. Unfortunately, this transition comes too late in the game to have much of an effect in creating a successful restructuring plan for the company. 

The Obama administration has learned a lesson from the government initiatives over the past year to support the ailing financial sector. Public opinion simply will not support bailouts without conditions.  In effect, while banks received incentives or “carrots” to change their ways, the government is trying the “stick” approach with the auto industry. What the government may find out is that, regardless of the tactic, it is very difficult to discipline companies as the U.S. political economy is currently structured. 

When President Obama signed the omnibus spending bill last week, he also killed an 18-month-old pilot program that allowed Mexican trucks to drive on U.S. highways. In retaliation, the Mexican government announced yesterday that it is levying higher tariffs on $2.4 billion worth of U.S. goods, including beer, shampoo, and toilet paper.

Columnist Mary Anastasia O’Grady outlines the history of the Mexican truck debate in Monday’s Wall Street Journal and argues that allowing Mexican trucks on U.S. highways improves trade relations, supply chain efficiency, and border security.

Smeal’s Fariborz Ghadar agrees that the trucks should be permitted on U.S. roadways:

If we are going to take NAFTA seriously, Mexican trucks should be allowed to cross the border and continue unimpeded to their U.S. destinations. First, Washington says that they’re not allowed because they are too dirty. Then, once they were cleaned up, the argument became that they’re unsafe. We put up hoop after hoop, and they’ve jumped through all of them.

We finally installed this pilot program, which allowed the trucks on U.S. roads for a year and a half with no safety problems whatsoever, until another election put politics ahead of good policy. The fact that this fight has been going on for so long has everything to do with labor politics and nothing to do with the safety of Mexican trucks. No matter what NAFTA says, if the government continues to put up one obstacle after another in the way of cross-border commerce, they eventually end up blocking free trade.

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