U.S. Gets Majority Stake in New GM
Monday, June 1, 2009
The Obama administration plans to take the next step toward resuscitating the American auto industry today, sending General Motors, the storied manufacturer, into bankruptcy protection.
The court filing will mark the end of financial independence for the 100-year-old industrial leviathan that once conflated its interests with the country's and that employed well over 1 million people, counting jobs at the company and at its suppliers.
The purpose of the bankruptcy is to restructure the automaker, as the government has been attempting do with Chrysler, having GM emerge from the process smaller, with fewer workers and brands, less debt, but also more viable.
The United States will invest another $30 billion during and after the GM bankruptcy process, bringing the U.S. commitment to $50 billion.
Following that infusion, "the U.S. Treasury does not believe or anticipate that any additional assistance to GM will be required," a senior administration official said Sunday night, calling the restructuring a "permanent" solution.
Under the proposed restructuring, about 60 percent of the new GM would be owned by the United States, about 12 percent by the governments of Canada and Ontario, a union health trust would own 17.5 percent, and the company's current bondholders would get 10 percent.
But as the administration builds the case for another massive infusion of government money into the automaker, it is also dealing separately with accusations that its plan unfairly favors the United Auto Workers at the expense of the company's investors.
The fairness issue will be central as the GM bankruptcy case goes before a judge this week: Does the government-sponsored restructuring plan equitably accommodate all of the company's stakeholders?
It is a legal and a political question, pitting company workers against investors, and it will be debated in and out of court.
Similar complaints arose from Chrysler's creditors, mainly banks and hedge funds, but Obama dismissed some of the lenders as mere "speculators," and their legal claims have failed to gain traction in court.
GM's creditors, however, consist of thousands of investors, individuals as well as institutions. One group of individual investors, calling themselves the Main Street Bondholders, have already organized to protest their treatment. And their claims have been echoed by some in Congress.
"The proposal seems to favor the rights and claims of the UAW, a political ally of the current administration and a powerful lobbying force in Washington, over the rights and claims of the company's diverse group of bondholders," according to a letter from 20 House members, led by Rep. Jeb Hensarling (R-Tex.), to Treasury Secretary Timothy F. Geithner. "Contractual rights of investors are being trampled by the government under the rationale of 'extraordinary circumstances.' "