Possible boost for Obama in GM bailout

WASHINGTON (Reuters) - President Barack Obama's takeover of General Motors carries some risk for him and fellow Democrats, but Americans may be more relieved than outraged over saving the ailing auto icon, analysts say.

The federal government could end up with a 72.5 percent stake in the Detroit-based titan of American industry under a bankruptcy restructuring plan expected within days, putting more than $30 billion in taxpayer funds at risk.

The deal will test the dictum "What's good for GM is good for America," but it may also be good for Obama, who struggled during the 2008 presidential election to connect with the working class and now stands to emerge as its perceived champion.

"If the Obama administration were to let GM fail ... people in places like northeast Ohio would ask, 'Why is there money for the rich bankers in New York and not the UAW worker here?'" said Paul Sracic, head of the political science department at Youngstown State University in Ohio, home to large GM operations.

"It really is necessary to at least look like you're helping the little guy."

But conservative Republicans, who generally oppose government interference in business, could find themselves in a difficult political position because of the deep roots that GM has in the United States, including in some Republican districts.

The automaker employs about 88,000 factory and salaried workers in the nation and has been a bellwether for industries like steel, plastics, warehousing, software, healthcare, trucking and makers of glossy paper.

The latest twist in GM's 101-year history comes after Congress and then-President George W. Bush, a Republican, last year agreed to create a $700 billion fund to bail out Wall Street firms whose troubles were threatening to freeze the global financial system.

In rapid succession, the U.S. government found itself in control of the country's biggest insurer, AIG, and housing mortgage giants Freddie Mac and Fannie Mae.

The image of Washington coming to the rescue of rich executives outraged voters in the weeks leading up to last November's presidential and congressional elections, with Republicans suffering stinging losses.

A Republican leadership aide in the U.S. House of Representatives contrasted the bank bailout to that of GM. "It does play differently. It (GM) does have a very different dynamic than what was perceived as helping the people whose very excesses caused the problem in the first place."

The aide, who asked not to be identified, said "there was a level of shock" associated with a $700 billion bank plan that was put together in a matter of weeks. Hints of a GM bankruptcy and bailout, however, have been circulating for at least six months, allowing politicians and the public time to prepare.

POLITICAL RISKS NONETHELESS

Congressional leaders have been uncharacteristically silent as details of GM's likely bankruptcy plan emerged this week and pundits heralded the birth of "Government Motors."

Part of the reason is Congress' weeklong recess, but aides say lawmakers also are awaiting details of GM's restructuring and may be gauging the public's reaction in the midst of a deep economic recession.

Conservative Republicans likely will ramp up their criticism of the government ownership of GM once Congress resumes work next week -- zeroing in on scenarios that may see public money keeping an uncompetitive company on life support indefinitely.

But they may struggle to gain traction, as some Republicans represent areas heavily reliant on auto industry jobs.

Republican Representative Thaddeus McCotter, who represents a suburban Detroit district, has criticized some House conservatives for complaining that an earlier version of the restructuring plan could become "a war on capital" and "trample" investors' rights.

"I, for one, believe there is a governmental assault on working people and capital in our country. We must defend both and defend them in that order," McCotter said in a statement last week.

Rebuilding GM is expected to be a long, painful process.

If the government rescue succeeds, Obama would get some credit, said Larry Sabato, a professor of politics at the University of Virginia. "But will this be in time for his reelection in 2012? Michigan is a vital part of the Democratic base, and a failure with GM won't help politically," he said.

The Democratic Party may not have to wait until 2012 to find out whether the GM gamble has paid off or collapses in acrimony. Ohio and Michigan, currently governed by Democrats, will hold gubernatorial elections next year.

(Editing by Paul Simao)