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Government Stake In GM Creates Complications

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Government Stake In GM Creates Complications

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Government Stake In GM Creates Complications

Government Stake In GM Creates Complications

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The government now has a 60 percent stake in General Motors. i

The government now has a 60 percent stake in General Motors. President Obama pledged that the company's board of directors and managers, not the government, will run the company. Bill Pugliano/Getty Images hide caption

toggle caption Bill Pugliano/Getty Images
The government now has a 60 percent stake in General Motors.

The government now has a 60 percent stake in General Motors. President Obama pledged that the company's board of directors and managers, not the government, will run the company.

Bill Pugliano/Getty Images

When President Obama announced this month that the government would own 60 percent of General Motors, he said the company's executives would still call the shots.

"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," he said.

If only it were that simple.

In fact, in recent weeks, lawmakers have lobbied the company and the White House over everything from which dealers to close to where a new car should be built. Some people who follow the car business worry that political pressure could undermine GM's ability to cut costs and survive.

Recently, GM told workers it would close a parts distribution center in Massachusetts. The facility sits in the congressional district of Democrat Barney Frank. Frank chairs the House Committee on Financial Services, which oversees the very government money that has kept GM alive.

Frank didn't want to see more of his constituents out of work in a deep recession, so he e-mailed the White House.

"I also called somebody at General Motors on Monday and said I think this is a bad idea, this is a bad time to do this," he says.

GM CEO Fritz Henderson met with Frank. Afterward, Henderson extended the life of the center for another seven months.

'Meddling' Vs. 'Getting Involved'

"In a word, it's incestuous," says Sen. Lamar Alexander (R-TN). Alexander says that now that the government owns GM, politicians shouldn't pressure the company to reverse the cost-cutting moves it needs to turn a profit.

"If you have 535 congressmen and senators, all of whom know nothing about building cars and have other larger interests in mind, telling GM and Chrysler how to design, build and sell cars — they're almost guaranteed to fail."

Last week, Alexander even gave Frank a mock "Car Czar" award on the floor of the Senate.

"That's a lot of political hooey," says Frank. He says the distribution center employs only about 80 people and keeping it open a while longer won't break the budget. Frank also says that with the government propping up GM with $50 billion, politicians are within their rights to scrutinize decisions.

"Now what we should do is not burden them in ways that would make it impossible for them to get through in the long haul," he says.

Asked if he was concerned about the government meddling in General Motors, Frank had this response: "That's a very odd question. If the government hadn't 'meddled' in General Motors, there would be no General Motors. 'Meddle' is what you say when you don't like it. 'Involve' is what you say when you do."

Lobbying From All Sides

Congress has certainly been involved in GM's plan to get rid of more than 1,000 dealers. The company says it has way too many and they're hurting the brand. But lawmakers are lobbying to save as many as possible and have spent hours in hearings criticizing car executives' decisions.

"In my vast, rural, northern Michigan district, if a dealer closes down, it can mean a two-hour drive for us to reach the next closest dealer," Rep. Bart Stupak (D-MI) said last week. "This will cause added expense and hardship for my constituents."

As lawmakers fight to save dealers, the United Auto Workers union has been lobbying to get new GM jobs.

"We quite frankly put pressure on the White House,' " says Ron Gettelfinger, who runs the union. When GM said it wanted to build a small car in China, Gettelfinger told the White House he wanted it in the U.S.

"If they're going to sell them here, they should build them here," he said on CNBC.

But that means more money. Ordinarily, it costs $1,200 more in labor to build a car in the U.S. than in China. For a bankrupt company like GM, that's a no-brainer.

The White House says it did not weigh in on this issue.

But eventually GM did agree to build the car here. Auto economist Sean McAlinden says he thinks GM got the union to agree to a much lower wage in this case, so the automaker won't suffer too much.

But McAlinden worries about the impact of all this lobbying. "I don't think it's time to hit the alarm bell yet that capitalism is dead, but people should keep an eye on it," he says. "Someone should be the Captain America with a shield to guard GM against political influence that might wreck their business plans."

Ultimately, the best candidate for that job is Barack Obama. The president has invested tens of billions of taxpayer dollars into GM, as well as a lot of his own political capital. He can't afford to see fellow politicians mess it up.

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