June 2, 2009 / 12:23 PM / 10 years ago

Obama may find it tough not to meddle in GM affairs

WASHINGTON/CHICAGO (Reuters) - U.S. President Barack Obama may find it tough keeping a pledge not to meddle in the management of General Motors Corp once the government takes majority ownership of the giant automaker.

The White House has put a priority on encouraging environmentally friendly technology. It could be tempted to weigh in on issues such as the mix of vehicles.

And lawmakers — some of whom already have spoken out against a GM proposal to shift some production overseas — may insist on a voice on everything from the location of plant closures to the pay scales of top executives.

“We’re already seeing them force out the CEO, restructure the board and talking about the right kind of cars for them to build,” said Douglas Holtz-Eakin, who was a top policy aide to former Republican presidential candidate Senator John McCain.

He was referring to the decision to pressure Rick Wagoner to step down as GM’s chairman and chief executive.

“I don’t know where that ends and I don’t know how you easily end it,” said Holtz-Eakin, now a private consultant.

The 100-year-old automaker, once the world’s largest, filed for bankruptcy protection to begin what the Obama administration hopes will be a fast-track restructuring.

The slimmed-down company that will emerge is expected to be 60 percent-owned by the U.S. government, which is giving GM a $30 billion cash infusion. The Canadian government and Ontario will take a 12 percent stake.

“We are acting as reluctant shareholders, because that is the only way to help GM succeed,” Obama said. “What I have no interest in doing is running GM.”

SAFEGUARDS IN PLACE

The Obama administration also said it had created safeguards to prevent interference, including prohibiting government officials from sitting on the firm’s board or working for firms in which the automaker invests.

U.S. officials, who briefed reporters on the details of the GM restructuring on Sunday night, likened the government’s ownership role to that of Fidelity Investments, a mutual fund giant that often holds large amounts of shares in other companies but does not seek to manage them.

Officials held a separate conference call with lawmakers to make it clear they wanted to draw lines and not allow political interference on issues like shutting plants.

The administration wants to balance two main aims, said Gene Sperling, counselor to U.S. Treasury Secretary Timothy Geithner.

It wants to make sure there is a strong board in place “and a strategy for viability” but “that must be combined with an equally strong commitment to stay out of even controversial day-by-day business decisions,” Sperling said.

Republicans wasted no time in attacking Obama’s plan. The Republican National Committee launched a Web video dubbed “Government Motors.”

Analysts said the hope of divesting quickly may not be realistic.

“If he’s going to be out in five years, I’ll be playing point guard for the Detroit Pistons that season and I’m 5-foot-6 and I’ll be 66 years old,” joked Peter Morici, a professor at the University of Maryland School of Business.

Government officials first need to stabilize GM, said Tim Ghriskey, chief investment officer with Solaris Asset Management in New York.

“That’s going to take a while and it might not be successful either,” he said. “We’re certainly talking years here. It could be as many as, say, five years before the government’s able to begin to unwind their stake.”

IT WILL BE MESSY

Louis Lataif, a former Ford Motor Co executive who is now dean of the school of management at Boston University, doubted government officials can resist the urge to meddle. The government also is likely to still be GM’s major stakeholder in 2011 when the next round of contract talks with the United Auto Workers union — which campaigned for Obama ahead of last year’s election — are due to take place.

“It’s inevitable it will be messy,” Lataif said. “We just don’t know exactly how.

“I think that’s just hopelessly naive that Washington is going to run Detroit,” he added. “There’s no evidence that Washington can run a private business.”

But others think U.S. officials will move as fast as they can to divest in a year or two once the auto market and economy improve, or risk sticking the taxpayer with large losses.

“In five years, if there’s anything left in the U.S. government’s hands, I would be shocked and they’ll want to just write it off at that point,” said Diane Swonk, chief economist with Mesirow Financial in Chicago. “That means GM has failed. That’s all there is to it.”

One of the aims of the government’s action is to buy time for the company and its various constituents to accept the shrinking of the once-formidable automaker, said former U.S. labor secretary Robert Reich.

“It would be too much of a blow to the nation and the consumer psyche to have the icon General Motors basically disappear,” said Reich, now a professor at the University of California, Berkeley.

Additional reporting by John Crawley and Jeremy Pelofsky in Washington; Editing by Howard Goller

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below