We research, you save.
June 1st, 2009

How Involved Will Washington Be With GM?



The Obama Administration has insisted repeatedly that Washington will not be involved in the day-to-day operations of General Motors. Current owners of 60% of the company, the White House claims they will rid themselves of their equity stake as soon as possible. Do you believe them?

www.WhiteHouse.gov has created an auto-restructuring fact sheet, which, among others things, establishes “four core principles that will guide the government’s management of ownership interests in…GM”.

  1. 1. “The government has no desire to own equity stakes in companies any longer than necessary, and will seek to dispose of its ownership interests as soon as practicable” (see “How A Velvet Glove Can Become An Iron Fist“).
  2. 2. “…the government will reserve the right to set upfront conditions to protect taxpayers, promote financial stability and encourage growth.” Those “conditions to protect taxpayers” could involve shakeups in management (see “Money Talks — Wagoner Walks“).
  3. 3. “The government will not interfere with or exert control over day-to-day company operations. No government employees will serve on the boards or be employed by these companies.”
  4. 4. “As a common shareholder, the government will only vote on core governance issues, including the selection of a company’s board of directors and major corporate events or transactions. While protecting taxpayer resources, the government intends to be extremely disciplined as to how it intends to use even these limited rights.”

Are these “four core principles” enough to quell criticisms that the new GM might as well change their name to “Obama Motors”? Not so if you consider that the government’s influence has already begun to be felt. Auto experts like John Casesa say the president’s push for fuel-efficiency poses a serious threat to GM’s profitability:

“The government has conflicting policy objectives now,” says John Casesa, a veteran Wall Street auto analyst who now heads his own advisory firm. Mr. Obama’s new regulations will “cost a lot of money” and “create substantial risk to the government earning a good return on its investment,” he says.

That could force the government to pump more money into a new GM down the road.

“The government will open its pocketbook again to help these companies rather than back off on its environmental agenda,” Mr. Casesa says. “It can’t have it both ways.”

Beyond fuel efficiency, Congress has also begun to meddle in GM’s foreign affairs:

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.

“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.

Not only will taxpayers be monitoring the interactions between the government and GM, so will Ford. The only domestic automaker that has remained free from government influence could be hit the hardest if regulations or “purchasing decisions” begins to favor the other two.

Share and Enjoy:
  • email
  • Print
  • RSS
  • Add to favorites
  • Yahoo! Bookmarks
  • Facebook
  • Twitter
  • Technorati
  • Digg
  • del.icio.us
  • Google Bookmarks
  • StumbleUpon
  • Yahoo! Buzz
  • Mixx
  • BlinkList
  • Live
  • Reddit

2 Responses to “How Involved Will Washington Be With GM?”

  1. Lucia Says: June 3rd, 2009 at 1:23 pm

    I don’t understand why the gov’t thinks it’s necessary to cut the number of dealers when it doesn’t cost GM to have dealers. I wonder if limited sources for GM products will reduce competition between dealers and allow for higher retail prices, part of which is passed back to GM.

  2. Tim Manni Says: June 3rd, 2009 at 1:43 pm

    Hey Lucia,

    Great to hear from you. The dealerships had to go b/c American automakers operate with far too much inventory. Slimming down both their number of dealerships as well as their product line will help them concentrate more on selling a higher volume of vehicles per year — they will make less and sell more. There were so many dealerships it diluted their sales. Going into bankruptcy, you’re forced to deal with several concessions (picture what a consumer goes through when they enter bankruptcy). GM probably would have fared worse if they entered bankruptcy on their own.

    Always great to read your comments, thanks,

Leave a Comment

Receive Updates via Email

Delivered by FeedBurner

About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

Our bloggers:

Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

Connect With Us

  • rss feed icon
  • facebook icon
  • twitter icon

Compare Lowest Mortgage Rates