White House (CNSNews.com) – President Barack Obama again stressed that his administration is a “reluctant shareholder” in General Motors, though the federal government controls almost two-thirds of the automaker.
“Understand we're making these investments not because I want to spend the American people's tax dollars, but because I want to protect them,” Obama said at the White House Monday.
“Instead of taking so much stock in GM, we could have simply offered the company more loans. But for years, GM has been buried under an unsustainable mountain of debt and piling an irresponsibly large debt on top of the new GM would mean simply repeating the mistakes of the past. So we are acting as reluctant shareholders,” he added.
Though pledging to be as hands off as possible, Obama did mention two potential policy points in the auto plan.
“As this plan takes effect, GM will start building a larger share of its cars here at home, including fuel-efficient cars,” Obama said. “In fact, if all goes according to plan, the share of GM cars sold in the United States that are made here will actually grow for the first time in three decades.”
The administration is committing another $30.1 billion to GM as it enters the bankruptcy.
The federal government will own a 60 percent share in the company and have a role in selecting members of GM’s board of directors. The Canadian government kicked in $9.5 billion, gaining a 12 percent stake.
The auto workers health care and pension fund will have a 17.5 percent stake in GM, while bond holders will have 10 percent. As part of the agreement, GM will reduce its goal of 16 million in annual sales to 10 million. It also will close 11 facilities.
Obama recalled that auto companies and government officials dismissed bankruptcy as an option late last year, asserting it would devastate consumer confidence.
“Many experts said that a quick, surgical bankruptcy was impossible. They were wrong,” Obama said. “Others predicted that Chrysler's decision to enter bankruptcy would lead to an immediate collapse in consumer confidence that would send car sales over a cliff. They were wrong, as well.
“In fact, Chrysler sold more cars in May than it did in April, in part because consumers were comforted by our extraordinary commitment to stand behind a quick bankruptcy process,” the president said.
The General Motors bankruptcy will be different from Chrysler’s, Obama said, because it is larger and more complex. The Italian auto maker Fiat is in the process of purchasing Chrysler.
House Minority Leader John Boehner (R-Ohio) said the agreement buys some time for GM but does nothing to ensure the company’s long-term sustainability.
“The only thing it makes clear is that the government is firmly in the business of running companies using taxpayer dollars,” Boehner said in a statement.
“Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability? It’s time for the Administration to fully explain what the exit strategy is to get the U.S. government out of the board room once and for all.”
The agreement also restricts GM’s ability to import smaller vehicles it already makes overseas. GM is selling its Opel operation in Europe as part of the restructuring deal, and part of the sale conditions reportedly stated that Opel’s new owners must stay out of the United States and out of China.
That’s a case of market manipulation and protectionism, said Thomas Donohue, president of the U.S. Chamber of Commerce.
“Our biggest concern with the restructuring plan expected to be announced later today is the potential for governments and unions to influence production, product, workforce, and management decisions in ways that could jeopardize the automakers’ chances for survival, put politics and special interests above sound business strategy, and disrupt our nation’s trading relationships across the world,” Donohue said in a statement.
“If members of Congress, along with government officials from the United States to Germany to Canada, are allowed undue influence over management’s decisions, then you can write this down,” Donohue continued.
“These companies will not return to profitability and their survival will be seriously challenged. The global talent that exists in the automotive sector must be allowed to do its job and be paid on a competitive basis. Management must be permitted to make tough decisions in a competitive global market without political interference,” he added.
Last December, the Bush administration provided a $13.4 billion bridge loan to GM and a $4 billion loan to Chrysler after Congress rejected auto bailout legislation.
The Bush administration used money from the Troubled Assets Relief Program (TARP), which Congress authorized only for financial institutions such as banks, insurance firms and credit unions.
In March, President Obama expanded the bailout to also cover the warranties for the two companies, while also pushing out previous GM CEO Rick Wagoner.