US govt firmly behind the wheel at GM

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(Agencies)
Updated: 2009-06-02 08:24

WASHINGTON -- President Barack Obama now owns General Motors, even though he insists he's taking it out only for a spin.

Hours after the government sent GM into court Monday to file for Chapter 11 protection, Obama declared, "What I have no interest in doing is running GM."

But with a 60 percent equity stake in the carmaker and $50 billion in taxpayer money riding on GM's success, the federal government is far from a hands-off investor.

In this photo taken on May 19, 2009 GM President Fritz Henderson, right, is shown as President Barack Obama greets auto industry executives in the Rose Garden of the White House in Washington at an event announcing new fuel and emission standards for cars and trucks. [Agencies]

Obama and his economic team stress that the government's goal is to get GM back on its feet, maximize the return to taxpayers, and exit quickly from its involvement. But as one administration official put it, there is an inevitable tension between those objectives.

And the snap in that tension could sting -- politically for Obama, economically for the auto industry and fiscally for the taxpayer.

How well a leaner GM adjusts after a trip through bankruptcy court is an open question. So is the payback to taxpayers. Administration officials already have warned that $2 of every $5 pumped into GM might be difficult to recover.

Given the economic crisis, the Obama administration's aggressive intervention is a defining moment for capitalism. Whether the president's actions serve as a private sector lifeline or a tether is a question that Obama and his economic team must confront not only with GM and Chrysler, another bailed-out automaker, but with the financial sector as well.

But the sheer size of GM's bankruptcy protection filing, the magnitude of the government's role and the company's status as a fallen symbol of American industry might make this intervention perhaps the most remarkable -- and among the riskiest.

"There is a huge wish list of things they want," Julian Zelizer, a professor of history and public affairs at Princeton, said of the administration. "They don't want any risk for taxpayers, at the same time they are promising potential rewards for taxpayers. They don't want to run this forever, but at the same time it's a failed company and they're taking on responsibility for it without any clear exit strategy. The longer the promise, the bigger the potential disappointment for people."

It's certainly not lost on the administration that automakers have a huge presence in Indiana, Michigan, Ohio, Wisconsin and Missouri -- all potential battlegrounds in a presidential contest. Whether voters there will remember the 66 percent of GM jobs Obama helped retain, or the 34 percent that GM had to shed to satisfy Washington, won't be known until the next election.

The administration's role to date has certainly been forceful.

The president a month ago forced Rick Wagoner out as GM's CEO. The Treasury Department dictated what bondholders should get for the $27 billion they held in GM debt. Obama's team determined that GM needed to downsize so that it could break even if auto industry car sales remain at 10 million vehicles a year, instead of the 16 million auto sales threshold it needs today.

And on Treasury's instructions, GM will replace a majority of its board members in consultation with the Obama administration.

Monday's Chapter 11 filing by GM was enough to spark a new round of partisan criticism. House Republican leader John Boehner of Ohio asked, "Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability?"

Eager to put a benign tone on their interventionist role, the White House and the Treasury Department issued a set of "principles for managing ownership stake."

In the principles, the administration acknowledges that in "exceptional cases" of substantial assistance to the private sector, it reserves the right to set up conditions to protect taxpayers, promote financial stability and encourage growth.

But, Obama stressed: "The federal government will refrain from exercising its rights as a shareholder in all but the most fundamental corporate decisions."

The head of Obama's auto task force, Steven Rattner, explained that those fundamental decisions would include the selection of directors and major issues such as the acquisition or the merger of the company.

"No plant decisions, no job decisions, no dealer decisions, no color of car decisions," he added. "Those are all going to be left to management."