Detroit, Mich. — “If the government now has a 50 percent equity stake in GM, how do you feel about being a nationalized company?” asked an on-the-ball British newspaper journalist in General Motors CEO Fritz Henderson’s press conference this morning in which the Obama-appointed GM chief outlined the company’s latest restructuring plan in which Washington takes an equity stake in return for canceling half of federal loans by June 1.
Replied Henderson: “I don’t think the Treasury has any interest in running GM.”
Maybe the Treasury doesn’t, but its bosses certainly do. And Democrats’ interest is not profitability, but building cars that will satisfy their green political constituency.
GM’s other new major stockholder would not seem to be interested in profitability either. Under GM’s debt/equity proposal, the United Autoworkers would now own 39 percent in return for at least 50 percent of the $20 billion the company owes the union to run a trust covering retiree health expenses.
In theory, the UAW would have a profit interest since the health of its health trust fund is now at stake. Historically, however, the union’s interest has been with job preservation, not the bottom line.
To summarize, then, 89 percent of GM will now be owned by two entities that have historically worked against Detroit profitability. Of the remaining shares, 10 percent will go to bondholders and just 1 percent to existing shareholders.
“GM has entered the never-never world of government ownership,” says Mackinac Center economist David Littman. While CEO Henderson says bankruptcy is still likely for GM, Littman says that term has now lost its meaning since the bondholders have become minority shareholders.
“The bondholders are the government’s competition,” adds Littman, who adds that many of GM’s bondholders are also addicted to TARP money and therefore between a rock and a hard place. “The government now has control. What they’re talking about is a euphemism for bankruptcy. It’s a restructuring. This has become a legal charade.”
With government calling the shots, says Littman, GM will now become a ward of the state producing products that politicians want, not customers.