Government ownership of General Motors (60% U.S. and 12% Canada) will be fraught with difficulties.

Given the large taxpayer stake in the company, it will be impossible for elected officials to stay out of the fray. Congress inevitably will interject itself in business decisions affecting employment, the kind of vehicles the company builds, or the company’s position on nationalizing health care – just as it is now asserting itself on the question of dealership closures.

Imagine the new General Motors (i.e., the government) attempting collective bargaining with the United Auto Workers’ union (on whose behalf the government stepped into the fray in the first place).

Consider the company lobbying Washington on an issue favored by the government (e.g., tax policy or the elimination of secret ballots for workers) but ill-suited for the company. And there there’s the matter of types of vehicles to be built.

With a strong environmental agenda, the government will understandably favor alternative fuel vehicles. Yet, there is no company in the world making any real money on such vehicles, given the current economics of alternative propulsion methods.

The government points to Toyota as a car company that has been responsive to the need for small, fuel-efficient cars, but Toyota reported a first quarter loss much worse than that of General Motors. That’s because the vehicles that keep these businesses viable — larger cars, SUV’s and trucks — are not selling in sufficient volume during this consumer credit crunch.

If GM’s new owner find that the company’s products are not selling well (while competitor vehicles are selling better) it may decide to institute expensive purchase-incentive programs. When those programs are matched by the competition (which is what happens in normal competitive marketing), thereby eroding the profitability of the healthier competitors, where do those stronger companies go to complain about predatory pricing practices by their government-owned competitor?

I think the current approach to “saving General Motors” will prove untenable.

If the government truly believed that America needed to save its domestic auto industry, it would have been far wiser if the U.S. Treasury served simply as a lender of last resort. It then could have granted the ailing automakers interest-bearing bridge loans with restrictive covenants requiring sacrifices from management, the union, the bond-holders, and suppliers — and then let professional managers run the private businesses.

Then when the demand for automobiles rebounds (as it always does following a recession), the taxpayers would be the first to be repaid.

But by becoming an owner, a role for which government is singularly ill-suited, the federal government has taken us into difficult, uncharted economic waters — a market-damaging move I suspect we will regret. Hopefully, the Treasury realizes this and will work to find a swift way out of its ownership position.

General Motors and Chrysler are on the anvil of history. United Auto Workers President Ron Gettelfinger holds the hammer and will determine whether they emerge more competitive or shattered in pieces and sold to foreign investors.

In December, George W. Bush granted $17.4 billion in temporary loans on the condition those firms convert two-thirds of their debt into equity. Another condition was to persuade the UAW to accept stock for one half of what these companies owe to fund retiree health care and align wages, benefits and work rules with those of the Japanese automakers operating in the United States.

GM and Chrysler must complete these negotiations by March 31 or repay the money and face bankruptcy.

At U.S.-based Toyota factories, workers receive about $25 dollars an hour and good health care benefits. But they don’t retire at 50 after 30 years or get as much time off and huge severance packages. Toyota does not endure the medieval work rules and job classifications imposed by UAW contracts.

Most other Americans would be happy to get Toyota pay, benefits and working conditions. If Gettelfinger continues stubborn resistance to a better package than most Americans enjoy, then Detroit automakers will continue to require government subsidies or not have enough profits to invest and compete in hybrid and other new technologies that will transform personal transportation over the next decade.

Eventually, Washington will tire of their begging, they will march through bankruptcy, and their factories will be sold off to Japanese, Korean, European and Chinese automakers.

If Gettelfinger takes the Toyota package, then Washington should take a hard look at policies that can promote U.S. automaking as effectively as do industrial policies abroad.

This would include addressing undervalued currencies in Asia — currencies kept cheap in foreign exchange markets by government intervention in Japan, China and elsewhere.

Over the last two decades, Japan has kept the yen at least 30 percent undervalued against the dollar, and this provided Toyota with an average subsidy of at least $2,000 on every car it sold in the United States.

Through 2004, the Bank of Japan directly purchased dollars in currency markets to keep the yen undervalued, and since, it accomplished the same by keeping Japanese interest rates very low. This encouraged the so-called “carry trade,” where private investors borrow yen, use those to purchase dollars and then invest in short-term U.S. securities to exploit higher U.S. interest rates.

Now, the Federal Reserve has dramatically reduced U.S. interest rates, and the yen has risen closer to its true market value against the dollar. Japanese officials appear poised to again intervene directly in currency markets to restore Toyota’s unfair advantage, and Washington should take whatever steps are necessary to head off such Japanese protectionism.

In addition, Washington should take assertive steps to encourage production of fuel-efficient vehicles in the U.S. and create a strong export industry.

Washington could offer incentives to car buyers to trade in gas guzzlers for more fuel-efficient vehicles — the newer and the bigger the clunker and the more fuel-efficient the replacement, the more dollars the car buyer would receive if the guzzler is destroyed. This would raise the price carmakers receive from selling more fuel-efficient vehicles and boost car sales.

Washington could provide substantial product development assistance to U.S.-based automakers and suppliers. The latter include Toyota, Nissan and Honda, as well as the Detroit Three, battery makers and other suppliers to accelerate the production of innovative, high-mileage cars.

The condition for assistance would be that beneficiaries do their R&D and first large production runs in the United States, and share their patents at a reasonable cost with other companies manufacturing in the United States. The huge U.S. market would help attract producers from around the world and rejuvenate the U.S. auto supply chain.

Such smart industrial policies would contribute to national efforts to reduce CO2 emissions and reduce oil imports.

Finally, individual Americans should open their minds. Many are considering trading in trucks and SUVs for sedans and are naturally attracted to the Toyota Camry and similar import brands. Visit a Ford or Chevy showroom and test drive a Fusion or Malibu and be pleasantly surprised. Those are high-quality, affordable and reliable vehicles.

Washington is giving Detroit a second chance, and Americans should give its cars a second look.

Green business is arguably the most important marketing innovation of the century. And it’s here to stay.

When we talk about green business, we’re really talking about the provenance of the products and services we sell. A business is green if its creators take into account its impact on the environment, and on society. Like a historic work of art, a pair of running shoes now has a provenance – a chain of collaborators, stakeholders and events that led to its appearance in your closet.

Did the factory owner in Guatemala employ child labor? Are the materials carcinogenic? What about the environment downstream from the factory, is it threatened? Did the shipping company control the pollution from its freighters? Does the U.S. distributor pay a living wage?

Consumers care.

And because consumers care, businesses can charge a premium for conscience.

Take the green building sector for instance. People often mistakenly assume that the boom in green building technologies was driven by conscientious consumers. In fact, contractors and manufacturers largely invented green building, then introduced it to the consumer as a way of differentiating, and premium-pricing, new products and services.

Builders are finding value in that differentiation. Every year about 20,000 building professionals attend the annual GreenBuild conference organized by the U.S. Green Building Council. Every day, about $500 million worth of construction registers for the LEED (Leadership in Energy and Environmental Design (LEED) rating system. There are LEED projects in 69 countries.

Then there’s the legendary Toyota Prius. Sales climbed from 29,000 cars sold in 2001 to 126,000 in 2004 to 281,000 in 2007. From January to April of this year, over 107,000 Prius hybrids were sold, and that number would likely have been even higher if production had kept pace with demand. Until the financial meltdown a couple of months ago, the waiting list for new Prius hybrids averaged around six months in the United States. No other fuel-efficient car came anywhere close to those growth numbers.

Yet the Toyota Yaris, which gets 80 percent of the Prius’ gas mileage and costs about half the cost of a basic Prius, sells about half as many units. You’ll never earn back the difference in fuel savings. Even more mysteriously, the Honda Civic Hybrid has been a relative dud. Why? It’s not reliability. It’s certainly not durability. What’s the quality difference? The uniquely styled Prius, as it goes down the road, advertises the driver’s conscience. The Civic looks like any other Civic.

The consumer cares about the product’s provenance, and the brand is enhanced when it’s widely recognized as more conscientious than its competitors or, in the case of the Prius, it’s merely more recognizable.

MAINSTREAM GREEN

The decline in traffic at Whole Foods stores this year has been cited as a sign that consumer interest in sustainability is on the wane. That’s not what it looks like from our perspective.

The biggest retailer of single copies of Mother Earth News is not Whole Foods — it’s Wal-Mart. That’s right, Wal-Mart. In fact, the big discounter sells two-and-a-half times as many copies of Mother Earth News as all the health-food and luxury grocers put together. Mother Earth News has about 2.3 million readers of the magazine and almost a million unique users at the Web site each month. And Wal-Mart is its best ally.

Subscription circulation is up significantly, too, but it’s the newsstand we look to for signs of new trends, and sales have continued to grow through the recession so far.

In fact, it looks like the declines at Whole Foods may be a sign of the mainstreaming of the green consumer. Wal-Mart is, according to a 2007 study from Scarborough Research, the nation’s largest organic retailer. Scarborough reported that 29 percent of organic consumers had shopped at a Wal-Mart Supercenter during the previous week, in spite of the retailer’s relatively poor reputation among the green elite.

The discount grocer Aldi is the biggest retailer of organic food in Germany. In Switzerland, the world’s most enthusiastic organic consumers (6 percent of all food sales) have made a mainstream grocer, The Coop, the nation’s largest organic retailer with the nation’s largest grocer, Migros, close behind in second place.

In a recession, a luxury retailer will naturally suffer more acutely than other retailers. Evidently, the same is not true for green products in the retail aisles.

And sometimes, blessedly, a greener product that preserves energy is also less expensive to manufacture or operate, making it even more attractive in a down economy.

Several times a year someone meeting me for the first time says something like, “I’m not an environmentalist, but I love Mother Earth News.” The first time I heard that it surprised me. Then it occurred to me that clean air, clean water, self-sufficiency and social conscience are universally popular qualities. It’s the political labels that sometimes alienate customers.

In their groundbreaking 2007 report, “Sustainability from a Consumer Perspective,” The Hartman Group suggests that one of the greatest value enhancements to a product or company, today, is the attachment of an “origin narrative” that connects “consumers to the people, places and processes that epitomize your company.”

Narratives are necessary to define products as green. They are the newest tools of product engineering.

Genuine narratives that translate easily across cultural borders are, of course, no small feat of engineering. Like all good engineering, it must produce a genuine improvement in quality, specifically the quality of the story and quality of the conscience with which a company does business. In today’s world, an ad slogan is a relatively weak differentiator. “Coke: The Real Thing” had its day. In tomorrow’s marketing environment marketers will need thorough narratives and companies will need verifiable value systems to rise above the competition.

The domestic automobile industry has two major components—the Detroit Three and the Japanese, Asian and European transplants that also assemble and source components in the United States and Canada. Both contribute importantly to the vitality of our national economy. Ensuring these companies have the means to compete globally is vitally important.

The gradual erosion of the market shares of the Detroit Three over the last several decades stems from higher labor costs—having origins in wages, benefits and work rules–poor management decisions, and less than fully supportive government policies. Although the U.S. government has been sympathetic to the needs of the industry, the industry has fallen victim to currency manipulation and other forms of protectionism in Japan, Korea, India, and China.

The Detroit Three are rapidly running out of cash and face filing for Chapter 11 reorganization. It would be better to let them go through that process and reemerge with new labor agreements, reduced debt and strengthened management that would permit these companies to produce cars at costs comparable to those enjoyed by their Japanese and other foreign competitors assembling vehicles in the United States.

Circumstances are dramatically different today than in 1979 when Chrysler received assistance from the federal government. In those days, the challenge at Chrysler was to become competitive with Ford and GM, and Lee Iacocca had a clear plan to achieve that objective and succeeded. Today, the Detroit Three, though improved in productivity and with lower labor costs thanks to concessions from the United Auto Workers, are still not as competitive as the Japanese transplants.

Margins in automobile manufacturing are thin and there is no such thing as being competitive enough. Either a company is competitive or it is not—either it accomplishes the cost structure enjoyed by Toyota and Honda, operating in the United States, or it will continually cede market share and run into financial difficulties.

By assisting the Detroit Three, Congress can delay one or all of them going through Chapter 11 reorganization but sooner or later one or all will face reorganization. The communities and suppliers dependent on these companies would be better off going through that process now than by delaying it with assistance from the federal government.

Without a new labor agreement that brings wages, benefits and work rules in line with those at the most competitive transplant factories, and without reduced debt and other liabilities, the Detroit Three will continue to lag in product innovation and field too few attractive new vehicles, because their higher costs, debt and other liabilities require them to spend less on new productive development than they should. Also, they are inclined to field products with less desirable content to compensate for higher costs.

As consumers find vehicles made by Japanese and other transplants more attractive, like those imported from Korea and eventually from China, the Detroit Three will cede market share of one or a few percentage points each year.

If Chapter 11 is put off, the successors to GM, Ford and Chrysler that emerge from a bankruptcy reorganization process will be smaller and support fewer jobs than if these companies endure this difficult transition in 2009.

More jobs can be saved among GM, Ford and Chrysler and their suppliers if bankruptcy reorganization is endured now than in the future.

When Americans buy automobiles from the Detroit Three, more is contributed to the vitality of the U.S. economy than when Americans buy vehicles assembled here by transplants or imports. These vehicles have more U.S. content in terms of jobs, engineering and profits than do foreign nameplate vehicles.

The Congress could take steps to improve the attractiveness of making cars and parts in the United States by improving the public policy environment. This would include finally addressing, directly and forthrightly, undervalued currencies in Asia—currencies kept cheap by intervention by foreign monetary authorities in China and elsewhere. In addition, assertive efforts to develop fuel efficient vehicles could strengthen the industry and create export strength.

For example, Congress could offer an incentive for car buyers to trade in their gas guzzlers—the newer and the bigger the clunker, the more the car buyer would receive under the condition the vehicle is destroyed. This would raise the price carmakers receive from selling smaller vehicles.

Congress could provide substantial product development assistance to U.S.-based automakers and suppliers. The latter includes Toyota, Nissan and Honda, as well as the Detroit Three, battery makers and other suppliers to accelerate the production of innovative, high-mileage cars.

The condition for assistance would be that beneficiaries do their R&D and first large production runs in the United States, and share their patents at reasonable costs with other companies manufacturing in the United States. The huge U.S. market would help attract producers from around the world and rejuvenate the U.S. auto supply chain.