washingtonpost.com
U.S. Bets Billions on GM's Resurgence
Obama Unveils Plan for Brief Bankruptcy, Nationalization

By Peter Whoriskey, Tomoeh Murakami Tse and Kendra Marr
Washington Post Staff Writers
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."

Steven Rattner, chief of the administration's autos task force, said the government played no role in choosing which plants to close and sought to quell concerns that it will make decisions better left to the company. "No plant decisions. No job decisions. No colors-of-car decisions," he said.

The administration also will dispatch eight Cabinet secretaries and other top officials to Ohio, Michigan, Indiana and Wisconsin this week to "discuss immediate ways the federal government is cutting through red tape to bring relief to auto communities and achieve long term economic revitalization," according to a White House statement.

All four states are considered presidential swing states, and the White House emissaries plan to discuss the administration's efforts to restructure the auto industry and to implement the $787 billion economic stimulus plan.

Addressing the workers directly, Obama said there would be pain ahead but added that their sacrifices will ensure the future of the manufacturing base so that "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."

Despite the complaints, the administration was buoyed yesterday by the news that a federal bankruptcy court had approved plans to create a new Chrysler run by Fiat, free of much of its debt and other crippling obligations.

"Keep in mind, many experts said that a quick, surgical bankruptcy was impossible. They were wrong," Obama said yesterday.

In its new Fiat alliance, Chrysler will expand its footprint with Fiat's Latin American and European distribution networks. Its gas-guzzling product line will add Fiat's smaller, more fuel-efficient vehicles.

But the global auto industry, analysts noted, is littered with failed joint ventures and mergers -- BMW and Rover, Fiat and GM, Ford and Jaguar and Land Rover, to name a few. Closer to home, Chrysler just finished extricating itself from another ill-fated union, with Daimler.

One of the main reasons for the trouble, auto executives and analysts said, is the clash of management between distinct corporate cultures.

Gerald C. Meyers, former chief executive of American Motors Corp., said he searched for a global partner 30 years ago in much the same way Chrysler had sought out Fiat. He found a willing partner in Renault, a French automaker.

"It was supposed to be a marriage made in heaven -- that's the same term that was used to describe DaimlerChrysler," Meyers said in a recent interview. "But they had no feeling for the heredity of the Jeep. People want to buy them and go off road with them and go fish, and the French had no idea what that was about, and they didn't care."

Renault eventually sold AMC to Chrysler.

The Obama administration has cautioned that the GM bankruptcy case will take longer than Chrysler's because it is a larger and more global company. But if the first day of court proceedings is any indication, GM's stay in U.S. Bankruptcy Court in Lower Manhattan will be a relatively short one, as well.

Judge Robert Gerber whipped through the agenda, giving approval to all 24 requests made by the automaker during a late afternoon hearing that lasted less than two hours.

Most significantly, Gerber gave GM the go-ahead to tap $15 billion of the $33 billion in financing from the U.S. and Canadian governments to finance operations while the automaker is in bankruptcy proceedings.

"We're confident, but we're not cocky," said Ron Bloom, a senior adviser to the president's autos task force, about the prospects in bankruptcy court. The revival of GM is a long-term project, the administration acknowledged.

"These are important steps on the long road to overcoming a problem that didn't happen overnight and will not be solved overnight," Obama said. "I recognize that today's news carries a particular importance because it's not just any company we're talking about. It's GM."

Tse and Marr reported from New York. Staff writer Michael A. Fletcher in Washington contributed to this report.

View all comments that have been posted about this article.

© 2009 The Washington Post Company