GM Stake Compromises Obama in Toyota’s Recalls

This article appeared in the Detroit News on February 9, 2010.
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When he urged Americans to “stop driving” their Toyotas last week, was Transportation Secretary Ray LaHood speaking as the head of a federal agency concerned with highway safety or as a sales advocate for a nationalized General Motors?

In testimony before the House Appropriations subcommittee on transportation last Wednesday, LaHood said: “My advice to anyone who owns one of these vehicles is stop driving it, and take it to the Toyota dealership because they believe they have the fix for it.”

Later that day, LaHood tried to clarify his remark, adding that the National Highway Traffic Safety Administration “will continue to hold Toyota’s feet to the fire to make sure that they are doing everything they have promised to make their vehicles safe. We will continue to investigate all possible causes of these safety issues.”

Certainly, Toyota’s faulty accelerators and brakes are legitimate safety issues, as are many of the other 2,000 recalls a year logged by the NHTSA. However, La Hood’s remarks, implying that Toyotas are unsafe to drive and that company leaders have been evasive about the problems, should raise some eyebrows.

After all, the Obama administration bought a 60 percent stake in General Motors costing taxpayers more than $50 billion and is thus vested politically in the company’s success. That GM’s value must exceed at least $83 billion (bearing in mind that the company’s highest‐​ever market valuation was $60 billion in 2000) before taxpayers can be made whole is the prism through which the administration’s words and actions on the auto industry should be viewed.

One important concern among auto industry analysts upon GM’s emergence from bankruptcy has been whether and how the Obama administration might use regulation and the tax code to tilt the playing field in GM’s favor.

Will consumers get special incentives to purchase high‐​mileage vehicles of the kind that — surprise — only Chevy Volt satisfies, for example?

Likewise, whether or not LaHood was exploiting an opportunity to reinforce doubts about Toyota and steer car buyers toward GM, there is no avoiding a conflict of interest when the government regulates an industry in which it has major stakes in one of the firms. One cannot objectively referee a race in which it has its own horse.

Often, to minimize conflicts between policy advocacy and personal enrichment, politicians create blind trusts to manage their personal assets. In this case, that option is foreclosed because the government’s stake in GM can’t be hidden.

So conflicts of interest — or at least the appearance of conflicts — in remarks from policymakers that can affect stock values, channel investment and invite class‐​action lawsuits will mar the competitive landscape until the government fully divests of GM.

If the government seeks to boost GM’s value before divesting, it can do so even‐​handedly by working to scrap the 35.5 miles per gallon fuel‐​efficiency standards slated for 2016. That requirement penalizes GM, which doesn’t fare well in a small car market, as the results of last year’s cash‐​for‐​clunkers program proved.

It would also remove an incentive for administration officials to kick Toyota when it’s down.