The General Motors restructuring is a gamble by the Obama Administration that the U.S. government can take a majority stake in an iconic manufacturer, help it regain some of its former glory—and then get out.
But the move already has its skeptics.
GM, once the world’s biggest auto maker, filed for Chapter 11 bankruptcy protection early Monday, setting up a scenario under which the U.S. government will become GM’s largest shareholder.
“The only thing it makes clear is that the government is firmly in the business of running companies using taxpayer dollars,” said U.S. House GOP leader John Boehner. “Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic vitality? It’s time for the administration to fully explain what the exit strategy is to get the U.S. government out of the board room once and for all.”
The government will own some 60 percent of a revamped GM.
Its ownership stake will give government officials more power to name members of the GM board. But President Obama he doesn’t want to get involved in the daily operations of the company. And no one’s overjoyed at the investment.
“We are acting as reluctant shareholders,” Obama said. “What I have no interest in doing is running GM.” Bizjournals.com
GM became the fourth-largest company to file for bankruptcy protection in U.S. history, following by just 32 days Chrysler’s bankruptcy filing. The filing came on a day when Chrysler’s bankruptcy judge cleared the way for that company’s sale to Italian automaker Fiat.
That was evidence, President Obama said, that it’s possible for a carmaker to go through a quick bankruptcy procedure to clean up its balance sheet and emerge with its customer base intact.
Obama acknowledges GM’s reorganization will take longer, because it’s a much larger company with global operations. The U.S. government, which had lent GM $20 billion before its filing, will put up an additional $30.1 billion to finance the company’s emergence from court protection. The initial investment is likely lost for good, but the government hopes to recoup the $30 billion in about five years.
The full impact of GM’s bankruptcy filing on the economy’s recovery from recession is unclear, but tough times are about to get tougher for the American auto industry — already hammered by collapsing sales — and many communities that depend on it.
As Obama put it Monday: “I will not pretend the hard times are over. Difficult days lie ahead. More jobs will be lost. More plants will close. More dealerships will shut their doors, and so will many parts suppliers.”
But the industry contraction taking place clears the way for a stronger manufacturing base in the United States, Obama said. It’s a sacrifice made today “so that your children and all of our children can grow up in an America that still makes things, that still builds cars, that still strives for a better future.” USA Today
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