In its glory days of the 1950s, General Motors sold 54 of every 100 new cars on the market. The century-old enterprise once symbolized all that was best about our nation.
Yet on Monday, the company became the government’s latest ward. What an astonishing and sad road to go down.
We had hoped GM would rally on its own, if necessary, through bankruptcy protection. But this so-called pre-packaged bankruptcy leaves taxpayers on the hook for $50 billion and puts the U.S. government’s ownership stake in GM at 60 percent.
This was not a bankruptcy filing in the normal sense, where a court helps a distressed company reorganize and work out new contracts with its creditors.
This was a nationalization of private industry, in which private creditors were bullied into accepting pennies on the dollar for the bonds they had extended to GM.
Complicating things, Canada’s government now owns a 12 percent stake as well.
We have to hope President Barack Obama can keep true to his word and avoid allowing Washington to let politics interfere with GM’s executives as they try to transform their company into a smaller, leaner “New GM,” as Obama put it.
GM cannot be micromanaged from inside the Beltway.
Critics on Monday were skeptical about Obama’s claims the government could begin to sell its stock in the company in as soon a year and be fully repaid within five.
According to an analysis by The Wall Street Journal, even if taxpayer support of GM remains capped at $50 billion, which is a long shot, the company would need to grow to a market capitalization of $80 billion for taxpayers to break even on the loan. For reference, GM’s recent market cap peak came during the go-go days of 2000, when the auto giant was at $56 billion.
Plus, the bankruptcy still means firing 21,000 workers, shutting down between 12 and 20 plants, and closing 40 percent of its dealerships. Those decisions must be made by GM officials based on what’s good for business, not what’s good for politics in D.C.
Politics already appear to be trumping business-minded decisions. Ron Gettelfinger, United Auto Workers president, claims to have pressured the White House and GM to halt shipment of up to 160,000 smaller, more efficient cars being made at overseas plants to the U.S. The UAW’s victory means more money will have to be spent on outfitting existing U.S. factories to make the smaller cars. It also comes at a time when the president is requiring much higher fuel-efficiency ratings.
It’s just one of the many troubling examples of what can happen when government interferes in the private marketplace.
Obama shouldn’t have taken us down this road. Let’s hope talk of taking the soonest possible exit isn’t chimerical.
