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Is auto rescue too big a role for government?

In dispatching GM's Rick Wagoner and directing carmakers toward clean cars, Obama indicates tax dollars won’t come free.

By Staff writer / March 30, 2009

Tough conditions: General Motors workers in Detroit watch President Obama's address Monday. Obama said more concessions were needed from unions and creditors before the carmakers could get further government aid.

Carlos Osorio/AP

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For better or worse, a federal government task force is becoming a guiding force in the automotive industry – stopping just short of actually coming to Detroit to install headlights.

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A stronger federal role is the price that two of the big US-based carmakers, General Motors and Chrysler, must pay to win new government funding to help them survive.

The nature of that price became clearer Monday:

• It can mean turnover in the corner office. GM chief executive Rick Wagoner will depart in what President Obama called an “initial step” toward restructuring. The company’s board of directors, too, will see substantial turnover.

• It can mean tough choices in which the government may be the one picking winners and losers. Chrysler “needs a partner” to be viable, Mr. Obama said Monday. That statement means that Chrysler will step up efforts to bolster an evolving alliance with Fiat. But if that doesn’t work out, the company’s survival is now in doubt.

• Some central goals for the industry may be set in Washington. Obama said he is “absolutely committed” that “the United States of America will lead the world in building the next generation of clean cars.”

All this puts both Washington and Detroit in relatively uncharted territory.

The outcome could be positive, averting the collapse of a major industry at a time when unemployment is rising fast. And the strong government hand is not that different from what any private investor in a troubled firm would expect to have. The Obama task force is trying not just to save jobs but to make sure taxpayer dollars aren’t wasted.

Yet the moves, which signal extraordinary federal willingness to direct private industry, raise some deep questions. Will industry become captive to Washington political interests? If Detroit companies were on the brink of collapse already, what guarantee is there that it will prosper with more hands on the steering wheel?

“I really question the decision of the Obama administration and the task force to become so involved in both General Motors and Chrysler,” says Dennis Virag, president of the Automotive Consulting Group in Ann Arbor, Mich. “The announcement this morning really hurts the industry.”

In responding to the current financial crisis, the government had already begun to take an unusually expansive role influencing companies in the private sector. It has taken a controlling stake in the insurance firm AIG, put mortgage lenders Fannie Mae and Freddie Mac into conservatorship, and become an investor in the nation’s largest banks.

For Mr. Virag, the issue is not whether there should be a government role. Federal loans can provide a lifeline so the companies can keep operating until an economic rebound begins to bring traffic back to car dealerships. He’d also support one idea that Obama mentioned in his speech Monday as a possible new policy: a generous tax credit to consumers who turn in old cars and buy cleaner cars.