In its history, GM never made an important decision in less than ninety days. That changed recently when the auto maker said it would reimburse its dealers for money they had given to their customers as part of the “cash for clunkers” program. The government has only processed 37% of the paperwork from dealers according to Bloomberg, so many of the car dealers were having cash flow problems, since they were unexpectedly waiting for checks from The Department of Transportation. GM recognized that this slow repayment could hurt its sales. The auto dealers were notified within a day that GM would reimburse them directly and immediately while Washington sorted out the bureaucratic mess that has been one of the hallmarks of the program.

The unexpected aspect of “cash for clunkers” was its success. The Administration has announced that it will stop the program at the end of the day, on Monday the 24th. The $3 billion earmarked for payments is virtually gone. There will undoubtedly be calls from auto executives and members of Congress, especially those from Michigan, to extend the program. It had ushered in the only recovery in domestic vehicle sales in two years. The program would have saved 2009 for Detroit if Congress and The White House had chosen to put another few billion into it. The administration is not willing to do this and moreover it is odd that the program has been canceled suddenly.

“Cash for clunkers” was always a bit of a political football. A number of other industries want pari passu treatment with the auto companies. Home builders, airlines, and beer companies all wanted the chance to offer their customers “cash back” incentives. The Administration could spend all of its time making the equivalent of life and death decisions about which industries it should support.

The most amazing aspect of the “cash for clunkers” program is that it has demonstrated that GM, once a dinosaur of American industry, is the most effective agent of the stimulus package in the country, besting by far any bank or government agency. GM was able to cycle cash into the government incentive program much more quickly that than any agency or department in the Administration. Car dealers were on the brink of insolvency waiting for the checks from the US and some dealers were even thinking of abandoning the program completely because of the slow pay problem. The Transportation Department’s reputation for ineffectiveness was only ameliorated by the cessation of the project. The department may even have had it shut down to save face.

GM’s ability to cycle the government stimulus package through the system at remarkably rapid speed  had a positive impact on consumers, troubled companies, and an improved operation of federal government program. GM is 70% owned by the taxpayers, so the company’s work on behalf of itself, car buyers, the government and car dealers also helped each American citizen.

GM got approximately $50 billion of government money to help it turn itself around. It ingeniously used a portion of this money to give the equivalent of “no interest” loans to its dealers, each of which is a small business which has workers that depend on it for their incomes. The dealers will eventually take the payment that they get from the government for their “cash for clunkers” payments to customers and send that money back to GM. GM has set up a system lightly burdened by administrative problems and one which transferred money to consumers and dealers without either of them facing any cost for the use of that capital.

The contrast of GM’s efficiency with that of most stimulus programs is stark. There has not been a single word about the billions of dollars earmarked for broadband infrastructure improvement making it to the firms that have to do the actual building of the grid. There is no evidence that any new jobs have been added to the economy because of the broadband initiative, nor have any been saved. Citizens without broadband or with poor service have not seen any improvement in their situations. The government timetable for fixing all of this is a mystery. GM helped get a faltering government program on better footing in a matter of days. Jobs at dealers were almost certainly saved and jobs were added at GM manufacturing facilities in order to handle the new car demand.

The government’s stimulus program is inefficient now and will almost certainly be so in the future. The people at the federal level who administer the programs have no financial incentive to speed money into the market place or monitor its use. They will not lose their jobs if any part of the stimulus program is a month or two late getting started. The essential problem is that the government is divorced from the normal market forces that require that managements operate quickly and efficiently.

“Cash for clunkers” may be gone, and, for political and financial reasons, it may not be coming back. It will probably not be matched in any other industry. The programs which make up the $787 billion stimulus package will be operated as planned. The problem that the “cash for clunkers” project uncovered was that the Administration’s part in the delivery of stimulus money operates in an inefficient and desultory manner. The government is too ham handed to take tens of billions of dollars and spread the money quickly through widely disparate parts of American business and industry. Government bureaus are poor monitors of the money that they spend. The Defense Department proves that each year when it meets with Congress to go over appropriations budgets.

GM knows how to run a stimulus program, at least for its large part of the American economy, and it runs it well because GM management knows that their jobs, the jobs of their workers, and the jobs of their dealers are on the line if they fail to meet their financial goals. GM will face going out of business, again. The sight of the gallows focuses the mind. Transportation and Treasury Department officials have never had to face that.

Douglas A. McIntyre

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