U.S. Bets Billions on GM's Resurgence
Tuesday, June 2, 2009
President Obama laid out his case yesterday for committing billions of dollars more to the rescue of General Motors, arguing that the nationalization of the industrial giant was necessary to bolster the foundering U.S. economy.
The former corporate icon filed for bankruptcy protection in the morning, on a historic day when another major American company, Chrysler, won permission to be merged with the Italian automaker Fiat.
During the GM bankruptcy, the United States aims to raise its investment in the company to $50 billion, take a majority stake in it and name most of its directors, giving the government unprecedented control over one of the nation's largest manufacturers.
The government has needed to take ownership stakes in private enterprises during the economic crisis, Obama said yesterday, "for the simple and compelling reason that their survival and the success of our overall economy depend on it."
Nevertheless, the plan poses significant political risks for his administration. Obama is gambling billions that GM can rise again after years of decline.
The success or failure of that investment will be easily measurable based on the company's eventual share price. The United States is slated to own 60 percent of the stock.
Meanwhile, some in Congress question not only the cost of the rescue but also the principles underlying it.
"We are helping the auto industry today. Who is it tomorrow? Is it the truckers? Is it the airline industry?" asked Rep. Jeb Hensarling (R-Tex.), one of the five members of the committee overseeing the Troubled Assets Relief Program. "The government should not be in the business of picking winners and losers."
At the same time, the restructuring plan is drawing criticism from some members of Obama's own party, particularly those representing industrial swing states, as GM makes significant reductions in its vast U.S. operations.
The government aims to make the automaker lean enough to turn a profit once U.S. auto sales return to 10 million vehicles a year. The sales rate is running below that. It topped 16 million during the credit boom.
Debate over the plan rippled across the nation yesterday as communities protested proposals to close or idle 17 GM plants and warehouses. About 2,000 dealerships will be shut down, as well. U.S. employment at the company is slated to shrink by 25,000, from about 88,000 to 63,000 next year.
In a letter to GM chief executive Fritz Henderson, Rep. John D. Dingell (D-Mich.) criticized a proposal to shutter the Willow Run Transmission Plant in Ypsilanti Township, Mich. "As you well know, this plant was once known as the 'Arsenal of Democracy' for having built the famous B-24 bomber that helped the U.S. and its allies win the Second World War," Dingell wrote. "Its closure would have a catastrophic effect on the community in which it is located."