A new name for Detroit's weakened auto giant GM is making the rounds, sometimes with irony, sometimes with dread, suggested by the deepest Washington industrial intervention in a half-century. The Obama administration is planting itself at the wheel of General Motors with a major ownership stake -- and all that goes with it for the U.S. taxpayer.
The company appeared closer than ever to bankruptcy on Wednesday after its bondholders turned their backs on a federally ordered offer to swap their debt for GM stock. If bankruptcy does come, the governments of the United States and Canada could end up with as much as 70 percent of a reconstituted GM when the court dust settles-- with the biggest share by far held by the U.S. Treasury.
Administration officials portray themselves as reluctant players in this industrial drama, their hands forced by an economic and financial crisis so severe that inaction would have terrible and far-flung consequences. And they insist they have no intention of managing the day-to-day operations of GM or Chrysler, which is already moving through a swift bankruptcy.
But with its huge financial stake, the government has hardly been a passive observer.
On March 31, President Obama -- a day after firing GM CEO Rick Wagoner -- gave the company until June 1 so it could emerge from bankruptcy court as early as next week.
While even a swift bankruptcy for GM would be a blow to the company's pride as an industrial giant, that step could be the best available. The company would emerge from court with a fraction of its current debt and so-called legacy costs for retirees, and with a more manageable dealer network. At issue is whether the proceeding itself would taint the company and damage its sales. So far, Chrysler's bankruptcy has not driven customers away.
Despite the relatively smooth experience with Chrysler, however, GM is a larger company that is more difficult to restructure. Chrysler has Fiat prepared to assume a portion of the company. No similar deal awaits GM. As a result, participants in the negotiations expect a GM bankruptcy to last longer.
What's more, any government involvement as broad as Treasury's in GM presents a number of nettlesome issues, not the least of which is whether the administration can resist congressional entreaties to influence management decisions.
"The task force role in looking at GM is as a private equity model," Sen. Bob Corker, R-Tenn., a member of the Senate Banking Committee who stays in frequent touch with Geithner and Rattner, said in an interview. "It's most unusual. The government is highly involved and it's a threshold we should have never crossed."
Auto industry analysts say GM would need a firm line between its ownership and the people actually running the company's operations.
"Politicians and pressure groups and the like are not good business people and could very well lead the company in an u5.
Some see the same in store for GM.
"This is a company that has had its up and downs," said Clifford Winston, an economist who has studied the auto industry at the Brookings Institution. "Why do we think the government is going to do a better job to turn things around?"
Sen. Debbie Stabenow, D-Mich., said the Chrysler intervention proved that the consequences of inaction are too great to ignore.
"The only reason that pensions and health care and the jobs have been protected is because the Obama administration was willing to come in with significant financing," she said. "Assuming GM goes into bankruptcy, the same will be true."