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GM deal drives skepticism


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POSTED: Tuesday, June 02, 2009

President Barack Obama promises that the government takeover of General Motors is temporary and from a distance, but many Americans are understandably skeptical about the new brand. The new federal role in the auto industry should be overseen at every turn and be guided to the earliest feasible exit.

A federal bankruptcy judge has approved bringing an end to the bankruptcy of Chrysler after only a month, but that was enhanced by sale of most assets to Fiat of Italy, which will hold 20 percent that could grow to 35 percent of Chrysler. GM has “;no other sale, or even potential purchasers, present or on the horizon,”; said GM chief executive Fritz Henderson.

The GM deal provides that American taxpayers, who provided $20 billion to the company, will invest an additional $30 billion, with little if any hope that it will be recovered. For that, the U.S. government will own 60 percent of the carmaker's stock, while Canada will take 12 percent. The rest will be owned by the United Auto Workers' health trust and the company's current bondholders.

“;We are acting as reluctant shareholders,”; Obama said, “;because that is the only way to help GM succeed.”; He envisions a much smaller, retooled company that can make money from cars that will be leaner, better run and more fuel-efficient. Most of the GM board members will be named by the Obama administration, and questions remain about the extent to which they will implement the wishes of the government.

The U.S. Chamber of Commerce expressed concern that the GM bankruptcy has the “;potential for governments and unions to influence production, product, workforce and management decisions in ways that could jeopardize the automakers' chances for survival, put politics and special interests above sound business strategy and disrupt our nation's trading relationships across the world.”;

Those are legitimate concerns but such accusations are not necessarily valid. While 20 House members alleged that the GM proposal “;seems to favor the rights and claims of the UAW,”; which supported Obama's presidential candidacy, the plan calls for the closing of 14 of GM's plants and the layoff of 21,000 union workers — hardly a campaign payback. Many UAW retirees who are bondholders will be forced to take stock worth a dime for every dollar they lent the company.

Still, the Obama administration will be examined closely, as it should, for every move made by what the president calls “;a new General Motors.”; The president should be the first person to desire a quick exit from this unprecedented expressway.