The Wall Street Journal (Link) - Neil King Jr., Jeffrey McCracken & Mike Spector (June 1, 2009)
Even after nine months of extraordinary government intervention, the scope and complexity of the General Motors Corp. rescue present a thicket of conflicts unlike any seen before in Washington.
The federal government is likely within weeks to emerge as the principal owner of a storied U.S. corporation whose factories and products touch the lives of tens of millions of Americans. It will simultaneously serve as the company's regulator, tax collector, customer, pension backstop and lender.
The administration put out a set of overarching principles Sunday meant to guide its interactions with GM and other companies in which the U.S. has an equity stake. The points stressed that the administration has no desire to own parts of companies and would do so only under extreme conditions. Once helping a company such as GM restructure, the government would manage its stake "in a hands-off, commercial manner" and not get involved in issuing day-to-day directives to GM, the guidelines said.
Obama aides have wrestled for weeks over how to portray the government's increasing involvement as an active player in the private sector.
But given the size of the $50 billion U.S. investment, it will be hard for President Barack Obama and Congress to say they will remain uninvolved in a company saved only by taxpayer largesse. Already the administration has said it wants to direct GM to make more fuel-efficient small cars, a potential threat to the company's near-term profitability. And members of Congress successfully pressured GM to roll back a decision to ship some jobs to China.
"There obviously is a balancing act," White House spokesman Robert Gibbs said Friday. "While not running an auto company on a day-to-day basis, obviously there will be concern about investments by the taxpayer, as there should be."
Chief among potential conflicts is the environmental arena, in which the federal government will be GM's largest shareholder and the chief regulator of vehicle fuel-efficiency standards.
GM is one of the biggest sellers of full-size trucks and sport-utility vehicles in the world -- vehicles that are notorious for fuel inefficiency -- and will continue to be even after bankruptcy. Yet such products, which include the Chevy Silverado pickup and Cadillac Escalade SUV, have always been among the company's most profitable. That could present the government with a painful trade-off.
Detroit's chief executives recently stood with Mr. Obama on the White House lawn and embraced his aggressive new fuel-economy and emissions targets, which would require the average passenger car to get 39 miles per gallon by 2016, up from the current 27.5 mpg. GM, Chrysler LLC and others have spent millions lobbying against such strict rules for decades.
Sales of small cars with more-efficient engines, for instance, grab only about 17% of the market and remain dwarfed by pickup trucks and sport-utility vehicles.
"The government has conflicting policy objectives now," says John Casesa, a veteran Wall Street auto analyst who now heads his own advisory firm. Mr. Obama's new regulations will "cost a lot of money" and "create substantial risk to the government earning a good return on its investment," he says.
That could force the government to pump more money into a new GM down the road.
"The government will open its pocketbook again to help these companies rather than back off on its environmental agenda," Mr. Casesa says. "It can't have it both ways."
Obama aides have said repeatedly that the administration will become, at best, a reluctant shareholder in GM and Chrysler. The government will help pick a first set of board members for GM and Chrysler, but after that, Obama aides insist, the government will stay out of the companies' day-to-day affairs.
Currently, the Treasury plan is to hold its GM ownership stake in a blind trust, say people briefed on the situation, and draw up so-called trust documents that lay out how that trust and its government-appointed trustees will manage the government's majority stake in GM.
GM's government ownership also could complicate the company's life overseas, potentially raising trade and other legal disputes. Trade lawyers point out that the U.S. legal system is itself highly wary of foreign state-owned enterprises, whose acquisition efforts in the U.S. often have been rebuffed by federal authorities. GM could face similar roadblocks if it tries to expand abroad.
Congress also is sure to exert its muscle over GM's affairs, as it did in recent weeks. Key lawmakers rebelled in May when word got out that GM, post-bankruptcy, planned to boost its imports of cars made at GM factories in China.
With pressure building on Capitol Hill, GM agreed as part of its talks with the United Auto Workers to reopen an idled factory in the U.S. for smaller models not now produced domestically.
Some experts already are asking what will happen within the Office of Management and Budget when regulations are promoted on fuel-efficiency standards or safety standards, for instance, that will prove costly to GM, and thus also to the federal government.
"Once the federal government is not simply a regulator, but is all of a sudden also on the receiving end of regulations, that fundamentally alters the politics of how the government interacts with the car industry," said John Graham, an auto safety expert who served as President George W. Bush's regulatory czar within the OMB.
That neutrality issue will be particularly pointed when it comes to Ford Motor Co., which alone among the Big Three has not received federal assistance. Mr. Graham and others worry that the government could find itself tilting key regulatory or purchasing decisions in favor of GM or Chrysler because of its interest in those companies.
Another clear area of tension is the issue of jobs. GM next week is expected to announce a round of plant closings as part of its bankruptcy filing. Similar closings could be necessary down the road if auto sales don't rebound.
But neither the administration nor Congress may be keen to see a government-owned GM slashing jobs in the battered Midwest. Similarly, while it might be in GM's interest to shift more production to China or buy more goods from low-cost countries, such a move would provoke stiff resistance in Washington. †
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