Please turn on JavaScript

Brooks Wilson's Economics Blog: Who's Running GM?

Thursday, June 11, 2009

Who's Running GM?

President Obama said his administration does not want to run the day-to-day operations of GM.  Neil King Jr., Jeffrey McCracken and Mike Spector describe the administration's position ("Potential Conflicts Abound in Government Role," Wall Street Journal, June 1, 2009). 
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.

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.
The selection of Edward Whitacre Jr. as the new chairman of GM illustrates what the government means by "helping" a company restructure.  Amy Thomson and Katie Merx of Bloomberg describe how Whitacre was selected ("Whitacre Vows to ‘Learn About Cars’ as GM Chairman (Update1)," June 10, 2009)(HT Drudge).  Nowhere does the article mention discussions with the existing GM management or anyone that has had experience in the auto industry. 
“What was required was somebody with savvy, big-business experience that could take a company, change its management culture, make some of those tough decisions to put it on that path toward viability,” Press Secretary Robert Gibbs told reporters at a briefing today.

The U.S. Treasury, which is backing GM’s restructuring with about $65 billion, reached out “some weeks ago,” Whitacre said, enticing him out of retirement to help oversee a company that has lost almost $88 billion since 2004.

“Lots of conversations” followed with Steven Rattner, the Wall Street dealmaker running President Barack Obama’s car task force, said Whitacre, adding that Treasury’s message was: “We need your help. It’s a great company. You could be a lot of assistance to GM.”
Why does the administration need to run the day-to-day operations when it has already decided the basic product and the management team to produce it?  Does anyone really believe the administration can't flex its ownership control anytime that it wishes?  Even if the executive branch manages to turn (10%) control of the company to other owners, the Canadian government (12%), the UAW (17.5%) and former bondholders, could the new owners keep Congress out of business decisions?  King et al write,
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.
King, et al also note potential conflicts of interest between regulators and the government owned company.
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.
What a mess.


  1. Jason Haddock11/6/09 12:49 PM

    I think I'll call the White House and ask for the GM service desk or warranty department. The government cannot nationalize this ocmpany and call their approach "hands off".

  2. Dr. Wilson,
    I feel like this article was very interesting, but I also feel that Obama is right in not helping GM on their everyday tasks. What Obama should do, though, is find a way to lower gasoline prices because that would shift the demand curve for traveling to the right. When this happens and more people do more traveling, cars get worn out in the process; hence, people need new cars. So, I feel that if this were to happen, Obama would be helping GM, but not running their company completely.

    Your student,
    Lindsey Scott

  3. Although a government takeover of GM might make the company more stable in the eyes of the public, it would hinder the "invisible hand" that America's economy thrives on. Bringing Whitacre out of retirement seems to be a step in the right direction, even though he's more experienced with communicational utilities than he is with the auto industry. While some will frown upon the "help" the government is giving with GM's new administrative restructuring, at least the actions of America's newest chairman will held accountable by the eyes of Washington, Wall Street, and Main Street.

    Clint Warren

  4. The biggest problem with GM is that it was time to put it to bed. yes all the jobs that would be lost from all the factories closing down (let alone the union pressure on obama) would be terrible. but because we couldn't let a dieing dog lay, we will have the bill for our grandchildren. the company WILL fail, it doesn't matter how many times you restructure or change the face of it.

    Student- Evan Barfield

  5. I do not agree that the government took the "blind hand" away from the consumers, and placed the governments hand as the guiding tool?? I get this picture in my head of the government(being the hands) holding the world...when does it become to much. Why were there bailouts for banks, without government influence and control? There are ways to deal with companies that are having financial difficulties i.e. bank bailouts...would it not have been more logical to bailout the people? If the government would have given the people the money they needed to get out of debt it would be a triple win.. (people receive the money and have to pay off their debt, the banks receive the money having their debt ceiling change, and the economy is stimulated by citizens spending more of their earned income to stabilize the economy). It seemed easy enough to me, but we allow the government to continue increasing our national debt and sit by why corporate America is eating us alive. For the demand curve to shift we have to change the how the invisible hand is moving in today's economy.