Does GM Stand For Government Motors?

General Motors says it's confident it can steer a course through bankruptcy court and emerge as a leaner, more competitive automaker. The company filed for bankruptcy protection Monday. The federal government is helping GM with another $30 billion in aid. That will make the government the company's majority shareholder.

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STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. Good morning, I'm Steve Inskeep.

RENEE MONTAGNE, host:

And I'm Renee Montagne.

General Motors says it's confident it can steer a course through bankruptcy court and emerge as a smaller and more competitive automaker. The company filed for bankruptcy protection yesterday, quote, "with regret." CEO Fritz Henderson tried to put the best spin on it.

Mr. FRITZ HENDERSON (CEO, General Motors): Today marks the beginning of what will be a new company, a new GM dedicated to building the very best cars and trucks.

MONTAGNE: In a moment we'll ask the company's chief financial officer about what it will take to turn a profit. The federal government is helping to re-launch GM with another $30 billion in aid. That makes the government the company's majority shareholder. But President Obama is promising he won't be a backseat driver.

NPR's Scott Horsley reports.

SCOTT HORSLEY: President Obama says the federal government never wanted to be in the car business. He only decided to rescue GM and its smaller rival, Chrysler, because he says the health of the overall economy depended on it. Mr. Obama calls the U.S. a reluctant shareholder.

President BARACK OBAMA: In short our goal is to get GM back on its feet, take a hands-off approach, and get out quickly.

HORSLEY: Hands-off is a relative term. The federal government has already fired one chief executive at GM. It rejected the company's original restructuring plan as inadequate. And the government will handpick most of the members of a new board of directors. Once that's done though, Mr. Obama says day-to-day management will be left to the car guys.

Pres. OBAMA: When a difficult decision has to be made on matters like where to open a new plant or what type of new car to make, the new GM, not the United States government, will make that decision.

HORSLEY: There will not be any government officials on the board. And the government says it will generally behave like any other commercial investor, with an eye towards maximizing taxpayers' return. One senior administration official likened the government's role to the mutual fund Fidelity, which owns stock in companies but doesn't try to micromanage them. Douglas Elliot, who studies business and public policy at the Brookings Institution, says that only goes so far.

Mr. DOUGLAS ELLIOT (Brookings Institution): Even in our capitalist society, the government plays a lot of roles, whereas Fidelity really is just an investor. So if they decide to act like just an investor, nobody thinks it's strange.

HORSLEY: Fidelity doesn't set fuel economy standards, for example. But the government does. What happens if the Obama administration's environmental goals conflict with GM's rapid return to profitability?

Mr. ELLIOT: You're also going to have, like it or not, issues with - are you favoring GM over Ford? And are you favoring GM over Honda, who builds in America, Toyota who builds in America, etcetera?

HORSLEY: Foreign automakers say they support the government's efforts to help the industry, but they're concerned that its GM ownership not compromise what they call free and fair competition. The government itself is a major buyer of cars and trucks. This spring the General Services Administration bought thousands of hybrid vehicles as part of the economic stimulus plan. Nineteen hundred came from Ford, only 1200 from GM. Another round of purchases is expected soon. As part of its deal with the United Auto Workers, GM agreed to build a small car in the U.S. rather than in China as it had planned. That may not help taxpayers recover their investment faster, but it still won praise from Mr. Obama.

Pres. OBAMA: In fact, if all goes according to plan, the share of GM cars sold in the United States that are made here will actually grow for the first time in three decades.

HORSLEY: And that's where the government is likely to face the most pressure to play a more active role at GM where it comes to jobs. The Brookings Institution's Elliot says even if the administration wants to stay hands-off, Congress will have other ideas.

Mr. ELLIOT: There's no way Congress will sit still and just say, oh no, we understand you want to be a passive investor, so that's okay.

HORSLEY: Members of the government's automotive task force say they've already been peppered with suggestions from lawmakers. The closure of a single auto dealership in one state drew complaints from two different members of Congress. For now the task force says it's simply passing those complaints along to GM. But the Senate Commerce Committee holds a hearing tomorrow to investigate dealership closings and to exert a little management pressure of its own.

Scott Horsley, NPR News, Washington.

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Q&A: What's At Stake For The New GM?

GM headquarters i

With an additional $30 billion investment, the U.S. government — and taxpayers — have become the majority owner of the new GM. Bill Pugliano/Getty Images hide caption

itoggle caption Bill Pugliano/Getty Images
GM headquarters

With an additional $30 billion investment, the U.S. government — and taxpayers — have become the majority owner of the new GM.

Bill Pugliano/Getty Images

For decades, General Motors has been an icon of American industry. Its decision on Monday to file for bankruptcy protection marks a humbling moment for the industrial giant.

With the U.S. government agreeing to become the majority owner, the hope is that a new, healthier version of the company will emerge. Here, a look at what the future holds for the new GM.

What's significant about this bankruptcy filing?

U.S. taxpayers will become majority owners of the humbled car giant, providing an additional $30 billion in assistance. In total, GM will have received nearly $50 billion in federal loans.

As part of GM's restructuring, the new company's financial liabilities will be slashed by more than 50 percent.

How soon will GM emerge from bankruptcy?

The government says it expects GM will need 60 to 90 days to emerge from bankruptcy protection as a new, slimmed-down company. That time frame appears possible, given the month or so that it will take Chrysler to emerge from Chapter 11 bankruptcy protection. (On Sunday night, a federal bankruptcy judge approved Chrylser's plan to to sell the bulk of its assets to Italy's Fiat.)

What might a smaller GM look like?

As part of cost-reducing measures, GM will sell off Saab, Saturn, Hummer and Pontiac in bankruptcy court. The new GM will emerge from bankruptcy with its stronger brands including Chevy, Cadillac, Buick and GMC.

The new GM will also be a lot smaller in terms of its employees. GM has already said that restructuring — in or outside of bankruptcy protection — will reduce its U.S. work force from 91,000 total workers at the end of 2008 to 71,250 by the close of 2009. On Monday, a GM spokesman said that the company is likely to lose an additional 4,000 salaried employees owing to layoffs, sale of brands, retirement and attrition.

What role will the Obama administration play in managing GM?

The U.S. government will become a majority owner of the new GM: It will receive a 60 percent ownership stake in the new company, along with $8.8 billion in debt and preferred stock.

"We are acting as reluctant shareholders," President Obama said Monday, "because that is the only way to help GM succeed." The administration's goal, he said, was to get GM back on its feet and to exit from the ownership role quickly.

Canada and the province of Ontario are also lending $9.5 billion to the company in exchange for a 12 percent ownership stake.

Will the U.S. government be involved in day-to-day operations?

The Obama administration says it will stay out of the day-to-day management of the company. That said, the U.S. will have the power to choose most of the board of directors; Canada and Ontario will be able to pick one of the directors.

Still, critics such as House Republican Leader John Boehner of Ohio questioned whether the U.S. government should be taking on such an unprecedented role in the future of GM. "Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability?" Boehner said Monday. "It's time for the administration to fully explain what the exit strategy is to get the U.S. government out of the board room once and for all."

Is taxpayer money at risk in this arrangement?

The Obama administration says that it does not want to hold its equity stake in GM "any longer than necessary" and that it will sell its shares as soon as "practicable."

If the government sells its shares before GM's stock begins to rise, U.S. taxpayers could lose some of the nearly $50 billion that has already been invested in the company.

James Angel, an associate professor at Georgetown University's McDonough School of Business, estimates that the government will hold its shares for three to five years.

"I think they will be very tempted to wait for the stock to rise to the point where they can say, 'Hey, we made a profit on this,' " he says.

Will GM need to draw on more taxpayer money in the future?

That's the big question.

The Treasury Department hopes the $30 billion will provide a "permanent resolution" for the company, a senior government official said Sunday night. The official said that Treasury doesn't anticipate needing to provide any additional financial assistance to GM.

The White House said that a slimmed-down GM will have a stronger chance of returning to profitability. As a larger firm, GM needed to sell about 16 million vehicles annually to break even. The new GM will need to hit a goal of about 10 million annual vehicle sales — only about a half-million more vehicles than it currently sells.

What does this mean for consumers who own a GM vehicle?

All warranties will be honored by the new GM. There is a question mark, however, for consumers who may want to purchase a Saturn, Saab, Hummer or Pontiac in the next year or two, since GM will sell off these companies as part of the bankruptcy proceedings.

What does it mean for the existing dealers and suppliers?

It's not entirely clear yet. GM says that it plans to close at least 14 factories and parts centers throughout the U.S. by the end of 2011, and this will undoubtedly have some effect on the industry at large.

Overall, the company said it expects to retain just 33 of its U.S. facilities by 2012 — down from the 47 it had at the end of 2008.

The White House said it expects that any dealers that are shut down will have 18 months to wind down their operations.

With additional reporting by Frank Langfitt

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