President Barack Obama couldn’t let General Motors fail, but he won’t concede he’s taking over the company.
With a 60 percent equity stake in the carmaker and $50 billion in taxpayer money riding on GM’s success, the federal government isn’t exactly a hands-off investor.
As GM enters into Chapter 11 bankruptcy protection, Obama’s economic team is stressing that its goals are to maximize the return to taxpayers and to exit from its involvement as quickly as possible. But as one administration official put it Sunday night, there is an inevitable tension between those two objectives.
And the snap in that tension could sting — politically for Obama, economically for the auto industry and fiscally for the taxpayer.
How well a leaner GM adjusts after a trip through bankruptcy court is an open question. So is the payback to taxpayers. Administration officials already have warned that $2 of every $5 pumped into GM might be difficult to recover.
Given the current economic crisis, the Obama administration’s aggressive intervention is a defining moment for capitalism. Whether the president’s actions serve as a private sector lifeline or a tether is a question that Obama and his economic team must confront not only with GM and Chrysler, another bailed out automaker, but with the financial sector as well.
But the sheer size of GM’s bankruptcy protection filing, the magnitude of the government’s role and the company’s status as a fallen symbol of American industrial might make this intervention perhaps the most remarkable.
The president a month ago forced Rick Wagoner out as GM’s CEO. The Treasury Department dictated what bondholders should get for the $27 billion they held in GM debt. Obama’s team determined that GM needed to emerge as company that could break even by selling 10 million vehicles a year, instead of the 16 million break-even threshold it needs today.
And on Treasury’s instructions, GM will replace a majority of its board members in consultation with the Obama administration.
Eager to put a benign tone on its interventionist role, the White House and the Treasury Department issued a set of "principles for managing ownership stake."
In the principles, the administration acknowledges that in "exceptional cases" of substantial assistance to the private sector, it reserves the right to set up conditions to protect taxpayers, promote financial stability and encourage growth. It says that could mean ensuring a strong board of directors with a "sound long-term vision."
Once those conditions are in place, the document says the government will manage its ownership stake "in a hands-off, commercial manner."
"The government will not interfere with or exert control over day-to-day company operations," the principles state. "No government employees will serve on the boards or be employed by these companies."
For Obama, doing little could prove to be quite demanding.
The administration already has proposed tougher fuel efficiency requirements by which GM will need to abide. The government also has pumped billions into the auto company’s lending arm and assured consumers that it will backstop GM warranties, putting it only a few bureaucratic steps away from fixing a transmission.
And if Obama doesn’t find cause to meddle, Congress very well might. The administration declared that it will have no say in what dealerships are closed in the Chrysler and GM restructuring, but members of Congress have tried to step in, asking that dealers be given more time to wind down.
House Speaker Nancy Pelosi, D-Calif., and Majority Leader Steny Hoyer, D-Md., asked administration officials on a Sunday night conference call how they would prevent sending GM manufacturing jobs overseas to China. Last month, several lawmakers were furious the administration didn’t speak out publicly when GM considered importing a fuel efficient car made in China. GM has since announced it will build the car in the U.S. in one of the plants that had been targeted for closing.
For Obama, helping save Rust Belt jobs has re-election consequences, too.
Automakers have a huge presence in Indiana, Michigan, Ohio, Wisconsin and Missouri — all potential battlegrounds in a presidential contest. The question for Obama is whether voters there will remember the 66 percent of GM jobs he helped retain, or the 34 percent that GM had to shed to satisfy Washington.
Jim Kuhnhennn covers politics and economics for The Associated Press.