President Barack Obama says the US government is the reluctant majority shareholder that will not try to run GM, now a ward of Uncle Sam, during temporary but indefinite nationalization. The Obama administration would intervene in major issues such as mergers and acquisitions but would let the company's management make all the day-to-day decisions. But the US Congress is already trying to micromanage both GM and Chrysler, which declared bankruptcy on April 30, most of its assets being sold to Italy's Fiat under a shotgun marriage arranged by the US Treasury, which is being contested in courts by Chrysler bondholders. Both GM and Chrysler had received billions of dollars of federal bailout money before entering into bankruptcy. Through both public hearings and private intercessions, some members of Congress are attempting to protect the interests of their constituents by having GM and Chrysler either cancel or delay plant and dealership closings in their districts and states.
GM, which plans to retain its mostly profitable Latin American, African, Middle Eastern and Asia-Pacific operations, will continue to close dozens of US plants and lay off thousands of workers from its US labor force through 2012. It will keep only four of its core brands, Chevrolet, Buick, Cadillac and GMC, getting rid of Pontiac. The Saturn, Hummer and Saab brands will either be phased out or sold off. China's obscure Sichuan Tengzhong Heavy Industrial Machinery Company is to acquire the muscular Hummer. The US entrepreneur Roger Penske, whose Penske Automotive Group Inc. is the second-largest US dealer network, is buying the Saturn brand and its US sales network but not production facilities. He plans to use Saturn's sales network to distribute both domestic and foreign cars. The shrinkage of GM will also result in the demise of thousands of GM dealerships.
Even if we assume that the GM bankruptcy will be speedy and surgical and the global recession will soon end to revive auto demand, it remains to be seen whether the new slimed-down GM, relieved of its legacy health and pension benefit costs, but susceptible to meddling in its management by the US government, not to mention the United Auto Workers (UAW), will make the quality cars and trucks that people want to buy after decades of making poor quality vehicles. Auto transplants, especially the Japanese Big Three (Toyota, Honda and Nissan), that manufacture vehicles in the US have already established themselves as formidable non-unionized competitors with both cost and quality advantages over the US Big Three. The Japanese Big Three, with strong balance sheets, also produce a much higher proportion of the small and medium-sized vehicles that can meet the tougher fuel economy standards pushed by the US government and have higher demand with rising gasoline prices.
GM itself is predicting that it will lose $17.5 billion this year and $1.3 billion next year. It expects to become profitable in 2011, earning $3 billion. GM was last profitable in 2004. Last year, it lost $31 billion. It will be many years before US taxpayers can even hope to start getting their $50 billion back from the New GM, referred to as “Government Motors” by its detractors and spoofers. We can now contemplate the demise of the New GM, which will inherit the dysfunctional corporate culture of the old GM and try to serve two masters, the market and the government, with conflicting objectives simultaneously, as David Brooks of The New York Times has noted. In 1953 GM President Charles Wilson, before becoming secretary of defense, famously said, "For years I thought what was good for the country was good for General Motors, and vice versa." As Robert Reich wrote in the Financial Times, now Wilson's saying is turned upside down, with “bad” replacing “good.”
