Cost Of GM Rescue Likely To Rise
MELISSA BLOCK, host:
This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.
ROBERT SIEGEL, host:
And I'm Robert Siegel.
Today, a landmark in the relationship between government and business: the federal government assumed a 60 percent stake in one of the biggest U.S. companies ever to file for bankruptcy.
President BARACK OBAMA: It's not just any company we're talking about, it's GM. It's a company that's not only been a source of income, but a source of pride for generations of autoworkers and generations of Americans.
BLOCK: President Obama spoke today of a new GM that can produce the high quality, safe and fuel-efficient cars of tomorrow and that is once more a symbol of America's success. The president also said he has no interest in, as he put it, running GM.
Pres. OBAMA: The federal government will refrain from exercising its rights as a shareholder in all but the most fundamental corporate decisions.
SIEGEL: And echoing a pledge that he made during the Chrysler bankruptcy, Mr. Obama said that GM warranties will be honored and backed by the government.
NPR's Frank Langfitt reports.
FRANK LANGFITT: President Obama said he didn't want to do this; spending a fortune in taxpayer money to finance General Motors in bankruptcy is really unpopular. And for the new president, it's a political and financial risk. But the alternative of letting GM and Chrysler fail, Mr. Obama argued, was much worse.
Pres. OBAMA: In the midst of a deep recession and financial crisis, the collapse of these companies would have been devastating for countless Americans and done enormous damage to our economy.
LANGFITT: For a company that once ruled the world's car market, today's bankruptcy filing was humiliating.
But GM CEO Fritz Henderson described it as a new beginning.
Mr. FRITZ HENDERSON (CEO, General Motors): The GM that many of you knew, the GM that, in fact, had let too many of you down, is history.
LANGFITT: Henderson promised a leaner company devoted to its customers. And he said General Motors would not betray them again.
Mr. HENDERSON: We look forward to the chance to win your business and earn back your trust. Give us another chance.
LANGFITT: President Obama said GM would move swiftly through bankruptcy court, and in 60 to 90 days, he said, a healthier, stripped down version would emerge. The new company would focus on profitable brands, such as Chevrolet and Cadillac. Struggling brands such as Saturn and Hummer would be sold off.
Some have doubted the government's ability to push a big industrial company through court, but President Obama cited the recent remarkable experience of Chrysler. The company went bankrupt a month ago; a new Chrysler is expected to leave court in a few days.
Pres. OBAMA: Keep in mind, many experts said that a quick surgical bankruptcy was impossible. They were wrong.
LANGFITT: GM is filing for bankruptcy to wash away tens of billions of dollars in crippling debt. It owes that money to everyone from bondholders, the people it borrowed from, to assembly line retirees. But GM's return to success isn't certain. The company still faces a fiercely competitive market and the worse sales environment in more than a quarter century.
Ed Altman is a professor of finance at New York University's Stern School of Business.
Professor ED ALTMAN (Stern School of Business, New York University): I think this is a big gamble on the part of the government, on the part of GM itself, that the bankruptcy will work. And frankly, I'm quite skeptical given the fact that the rest of the competition is not going to sit back and say, oh, we have to now give them some market share because they are an American icon. It doesn't work that way, unfortunately.
LANGFITT: And after taxpayers have sunk all that money into General Motors, Altman wonders...
Prof. ALTMAN: If it doesn't go well, the question then is what do you do? Do you let them then liquidate or do you keep putting money, you know, good money after bad?
LANGFITT: The Obama administration said that won't happen. This is it for support for GM, said one senior administration official.
Some auto analysts are hopeful about the company.
Rebecca Lindland follows the car business for the firm IHS Global Insight. After GM gets rid of all those huge debts, she thinks the company could eventually make a profit and survive.
Ms. REBECCA LINDLAND (Director of Automotive Research for North and South America, IHS Global Insight): I think that we're reasonably optimistic that GM won't find itself in this position again.
LANGFITT: As to how much of that $50 billion we taxpayers might get back, well, neither GM nor the government is saying.
Brian Johnson is a financial analyst with Barclays Capital. Today, in a note to clients, he said this: if auto sales rebound quickly, taxpayers could get half of their money back in several years. But if sales remain relatively low, the government could end up losing more than $35 billion on General Motors.
Frank Langfitt, NPR News, Washington.
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