Online at: http://politicalaffairs.net/article/articleview/8600/

GM: America's Car Company

By Joel Wendland

Archives - Dates and Topics

2009 online

June 1 – 30, 2009 click here for related stories: capitalism

6-02-09, 9:46 am

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We all own General Motors now. The US government will provide about $30 billion and the Canadian government will chip in another $9 billion to keep General Motors (GM) afloat through a bankruptcy process that began June 1st, according to a White House fact sheet on the details of an agreement worked out by the Obama administration among the various stakeholders in the company.

In exchange for this new assistance from the federal government, the US government will gain control of a 60 percent equity stake in the company, the Canadian government will control about 12.5 percent. In addition, up to 20 percent of the stock will be obligated to the UAW-controlled employee benefits fund. Known as VEBA, this union fund will finance healthcare and retiree benefits for the union's members, the White House revealed Monday.

In other words, US and Canadian taxpayers and autoworkers themselves will own as much as a combined 92.5 percent of the company.

For its part, GM has also agreed to reduce the size of its operations and go through bankruptcy to eliminate more than $27 billion in debt held by bondholders. It will also build a new small car in idled UAW factories and increase the share of US-based production from 66 percent to 70 percent.

"I am absolutely confident that if well managed, a new GM will emerge that can provide a new generation of Americans with a chance to live out their dreams, that can out-compete automakers around the world, and that can once again be an integral part of America's economic future," the President Obama stated during a speech announcing the agreement.

Rejecting claims in a Wall Street Journal op-ed that the Obama administration's restructuring plan favored workers over shareholders, UAW leaders pointed out in a press statement released Monday, June 1st, that "the biggest sacrifices will be made by the tens of thousands of workers who will lose their jobs as a result of the numerous plant closings that GM is announcing in its restructuring plan."

Some 400,000 workers tied to the auto industry have lost their jobs in the past 15 months. Under the restructuring deal, about 21,000 additional autoworkers will laid off as the restructuring deal closes and additional 14 plants.

The White House document also noted that "The UAW has made important concessions on compensation and retiree health care that, while difficult, will help save jobs for active employees, pensions and health care for retirees."

Auto Task Force Ron Bloom, who played a major role in putting the restructuring package together, discussed with reporters the role of the government as majority shareholder of GM. "The government did not want to be an owner of General Motors, not of 60 percent, not of six percent," he remarked.

But the administration decided early on that simply providing a new round of loans to the automaker as it had earlier this year would do little more than pile on more debt and delay inevitable restructuring.

Bloom stated that as a majority stakeholder using taxpayer dollars to keep GM afloat, the government now has a responsibility to make sure the company runs properly and that taxpayers see a return on the financial aid provided to the company. "(The government) has to demand something in return for this capital," he said.

Describing the government as a "reluctant shareholder," Bloom emphasized that government ownership will not translate into government management of the company, however. "We've made a series of very rigorous decisions to not involve ourselves in the day-to-day management of the enterprise," he explained.

The government will confine itself to playing a role in the selection of the company’s board of directors and major corporate events or transactions and decisions that will affect the taxpayer investment, Bloom indicated. "The government believes it is helping the economy best by not being an active or any kind of shareholder in large American companies," he said.

Bloom also emphasized that economic recovery act funds and other resources will be made available to states like Michigan where GM restructuring will have the biggest impact on local communities.

While the administration has indicated that it will sell its new stake in GM as quickly as practicable, no timetable for doing so has been detailed.

In his speech President Obama expressed optimism that GM would survive the crisis and this would be the final aid package to the company. He also urged Congress to pass a "cash-for-clunkers" program to boost auto sales, announced new small business loans available to auto dealers and pledged a loosening of credit to accelerate the sales of cars.

Assessment

1. President Obama's efforts have helped fend off a far worse disaster for the workers at GM.

2. Capitalists remain in control of major media outlets that continue to snipe at Obama administration policies as being socialist because the administration applies common sense methods in order to repeating the same actions that caused the current meltdown in the first place.

3. Despite their failed management of this company and others (along with their corrupt control over the financial system as a whole) capitalists labor under the delusion that taxpayer assistance should come without strings attached.

4. For this reason, the White House feels under the gun to participate in a PR war over whether or not the GM restructuring is a full-blown nationalization.

5. While the Obama administration's statements about its hands-off approach should be taken at face value, practical ownership of GM over time could subject the new management to political pressures. For example:

A) the President has already reportedly expressed his support for keeping GM's headquarters in the city of Detroit, despite efforts to move it to an area suburb.
B) by virtue of their relationship to the Obama administration, the workers and their union will have a stronger voice in the management of the company (this point has sent the Wall Street Journal's editorial board into a conniption).
C) taxpayers will have a greater voice in calling for GM to look at alternative production, such as mass transit, hybrid cars and other projects that help us move beyond a fossil fuel economy.

6. Practical ownership of the company just may convince the new management, the union and the government to hold onto this equity stake in the company as long as possible in order to maximize the benefits of that ownership.

7. Only ongoing and organized political pressure on the government to retain its stake, however, will ensure that this new voice at the table will be meaningful. The UAW is uniquely positioned to help organize and mobilize that public pressure.

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