In his prepared remarks before the Senate Banking Committee on Thursday, General Motors CEO Rick Wagoner Jr. spoke of the urgent need for federal assistance for the Big Three U.S. automakers.

Wagoner insisted that such funding is not only necessary for GM, but vital to the U.S. economy as well. He specifically requested that the federal government make available $12 billion in short-term loans, along with a $6 billion line of credit in the event the current severe market downturn persists, with an immediate loan of $4 billion and a second draw of up to $4 billion in January.

He said that GM intends to begin repaying the loans as soon as 2011 and, under baseline industry assumptions, fully repay them by 2012. Wagoner never brought up the specter of bankruptcy, but its threat is present and would clearly be the main motivation for the U.S. government to provide the requested funding.

I believe that considering only these two options for an imperiled GM — either bailout by the U.S. government or bankruptcy — omits an important alternative, which I see as the best option: a takeover of GM by Toyota Motor Corp. This approach would be similar to the takeover of Bear Stearns by JPMorgan Chase & Co. at a very discounted price when Bear Stearns was facing imminent bankruptcy. As in that case, such a takeover could be facilitated by the U.S. Treasury, but acting in concert with Japan’s Ministry of Finance in this instance. Bear Stearns was one of the largest global investment banks and securities trading and brokerage firms before its sale to JPMorgan Chase this year, just as GM is one of the world’s largest automakers.

Last year General Motors ranked as the fifth-largest company in the world, with sales of $207 billion and a loss of around $2 billion. Toyota, meanwhile, ranked in 2007 as the sixth-largest company in the world, with sales approaching $205 billion and a profit of $14 billion.

Those numbers changed dramatically in 2008, with GM falling from fifth to ninth with sales of $182 billion and a loss of nearly $39 billion, while Toyota moved up to fifth place with sales of $230 billion and a profit of $15 billion.

Judging by these numbers, Toyota obviously knows how to run an international auto company while GM plainly doesn’t. Putting Toyota in charge of GM could remedy the current desperate situation for the American automaker and form a company that is stronger than either on its own by pooling their assets and expertise.

Merging GM and Toyota would preserve vital human capital as well as physical infrastructure. Perhaps more important, in the context of the challenge of the global need to cut greenhouse gases while maintaining economic health, is that such a merger would accelerate the deployment of lower-emitting vehicles, both through higher mileage for conventional engines and the use of hybrid gas-electric technologies. Both GM and Toyota have outstanding engineers and scientists, and combining them could create the best automotive technology group in the world.

Joining these two giants of the international auto industry could signal to the market that policymakers are serious about not only preserving the organizational and physical infrastructure associated with GM — including its factories, dealerships, suppliers, physical capital, etc. — but doing so in a way that gets the private sector involved in the challenge of reducing greenhouse gases. Toyota has been at the forefront of new technology and progressive management techniques, which could be enhanced by its acquisition of GM’s assets.

Overall, a takeover of GM by Toyota would be a way of dealing with GM’s current problems and could lead to a powerful combined company that could deal with the managerial and environmental challenges that they each are now facing on their own.

Michael D. Intrilligator is professor of economics, political science and public policy at UCLA and a senior fellow at the Milken Institute and the Gorbachev Foundation of North America.


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