WASHINGTON (AP) — Government Motors.
A new name for Detroit’s weakened auto giant GM is making the rounds, sometimes with irony, sometimes with dread, suggested by the deepest Washington industrial intervention in a half-century.
The Obama administration is planting itself at the wheel of General Motors with a major ownership stake — and all that goes with it for the U.S. taxpayer.
The company appeared closer than ever to bankruptcy Wednesday after its bondholders turned their backs on a federally ordered offer to swap their debt for GM stock.
If bankruptcy does come, the governments of the United States and Canada could end up with as much as 70 percent of a reconstituted GM when the court dust settles— with the biggest share by far held by the U.S. Treasury.
Administration officials portray themselves as reluctant players in this industrial drama, their hands forced by an economic and financial crisis so severe that inaction would have terrible and far-flung consequences. And they insist they have no intention of managing the day-to-day operations of GM or Chrysler, which is already moving through a swift bankruptcy.
But with its huge financial stake, the government has hardly been a passive observer.
On March 31, President Barack Obama — a day after firing GM CEO Rick Wagoner — gave the company until June 1 to make aggressive cuts. It was the Treasury Department that instructed GM not to offer bondholders any more than 10 percent of company equity.
And no corporate owner has as direct a line to Congress as the Treasury Department. Lawmakers last week were already pressuring Secretary Timothy Geithner to intervene in the planned closure of auto dealerships and complained about GM plans to import cars made in the company’s Chinese plants.
Obama’s auto task force has been working with General Motors, its union, bondholders and dealers to win concessions since February. The panel has been led by Steven Rattner, a former Wall Street financier and a top Democratic fundraiser, and Ron Bloom, a Wall Street turnaround specialist who has advised the United Steelworkers union. When Obama decided to oust Wagoner, it was Rattner who informed the GM executive.
“We’ve tried to be true to the president’s basic principle that we should not be in the business of running the company,” Bloom told The Associated Press. “We are the president’s line people, making recommendations to the decision-makers on large amounts of taxpayer dollars. So we have a tremendous responsibility to be thoughtful about our recommendations on how those dollars get used. On the other hand, we are not the management of the company.”
Despite the relatively smooth bankruptcy experience of Chrysler, however, GM is a larger company that is more difficult to restructure. Chrysler has Fiat prepared to assume a portion of the company. No similar deal awaits GM. As a result, participants in the negotiations expect a GM bankruptcy to last longer.
What’s more, any government involvement as broad as Treasury’s in GM presents a number of nettlesome issues, not the least of which is whether the administration can resist congressional entreaties to influence management decisions.
“The task force role in looking at GM is as a private equity model,” Sen. Bob Corker, R-Tenn., a member of the Senate Banking Committee who stays in frequent touch with Geithner and Rattner, said in an interview. “It’s most unusual. The government is highly involved, and it’s a threshold we never should have crossed.”
Auto industry analysts say GM would need a firm line between its ownership and the people actually running the company’s operations.
“Politicians and pressure groups and the like are not good business people and could very well lead the company in an unproductive direction — maybe a lethal one,” said Gerald Meyers, a University of Michigan business professor and former chief executive of American Motors Corp.