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Chrysler's Fall May Help Administration Reshape GM

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[New York Times]

Chrysler's Fall May Help Administration Reshape G.M.

WASHINGTON — Fresh from pushing Chrysler into bankruptcy, President Obama and his economic team are hoping that the hard line they took last week gives them leverage to force huge changes in General Motors, a far larger and more complex company.

Officials say that, difficult as Mr. Obama's decision was on Wednesday to take all the risks of a Chrysler bankruptcy, the politics of reshaping G.M. will be far harder. Already a shadow of the company that once dominated the American landscape, G.M. will be forced to eliminate tens of thousands of additional jobs and close factories and dealerships nationwide.

In Chrysler's case, the tough job-cutting decisions had already been made and the government is taking only a small stake. An alliance with Fiat envisions selling the company's cars in new markets around the world and adding cars that use Fiat's fuel-efficient technology.

But in G.M.'s case, Mr. Obama will be forcing deeper cuts and becoming the controlling shareholder. He will also be overseeing the radical downsizing of G.M.'s work force as he is trying to reverse rising unemployment.

"G.M. is very different than Chrysler," Rahm Emanuel, Mr. Obama's chief of staff, said Friday. "But I suppose the one lesson for G.M., and all the other players, is that this is a moment when a Democratic president said, 'I am really willing to let a company dissolve, and there's not going to be an open checkbook.' There's got to be real viability."

No one thinks Mr. Obama is going to allow G.M. to be broken up, its assets sold or abandoned.

But if the Chrysler legal process unfolds as the White House hopes it will in coming weeks, the bankruptcy option may look increasingly attractive for G.M. as well, officials on Mr. Obama's automotive task force said. Bankruptcy may also be the only way to force the kind of paring down that Chrysler, with a third of G.M.'s workers and half the number of plants, did not have to endure.

"The threat of bankruptcy is very important in the negotiations with the bondholders and the dealers and others," said David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "Without a clear and present danger to them, they won't make a reasonable deal."

G.M.'s latest restructuring plan — which the White House has yet to approve — calls for trimming 47,000 jobs worldwide, closing more than a dozen plants in the United States, eliminating four brands and shuttering 2,600 dealerships.

Even that may not be enough. As the leaders of Mr. Obama's task force faced down recalcitrant Chrysler creditors on Wednesday, a team of more junior officials was in Detroit assessing whether G.M. was cutting deeply enough to turn a profit.

"Our marching orders were to do both Chrysler and G.M. the way we would do a strictly commercial deal," said a senior official on the task force, who would not speak on the record because the negotiations with G.M. were still in progress. "We're not going to sit there and tell G.M. how many jobs to cut, or what models to eliminate. But we are going to look at the financials, the balance sheet, and see if the plan they come up with passes that test."

Because Chrysler was already the most marginal of what were once called the Big Three — this will be its third corporate reincarnation in a decade — Mr. Obama could afford to take a hard line. But when dealing with a company as politically sensitive and as large as G.M., the administration will have a far harder time separating the economic decisions from the political challenges.

In Chrysler's case, a handful of the company's 46 lenders presented the biggest roadblock. Mr. Obama could portray them as obstructionists who put their demands for repayment ahead of preserving the company.

But General Motors' creditors number in the tens of thousands and include pension funds that bought the company's unsecured bonds. G.M. bondholders have no claim on its plants or inventory, but they will probably attract more sympathy than Chrysler's Wall Street lenders did.

The Treasury Department will pay $2 billion to Chrysler's bondholders, but it is offering only stock in a new G.M. to its creditors — 225 shares for each $1,000 in debt held, making them minority owners who are invested in the company's success. "That's the bargaining chip," said Mr. Cole of the Center for Automotive Research.

Ahead of the June 1 deadline, Mr. Obama holds all the leverage: The bondholders' only alternative would be to get in a long line of creditors who will be paid relatively little, because G.M. bonds are trading at about 10 cents on the dollar. It "may not be such a bad deal in the end," Mr. Cole said.

G.M.'s case also differs from Chrysler's in another crucial sense: there is no Fiat in the wings, no big private investor ready to bring new money and new technology. Instead, Mr. Obama will effectively use taxpayers as that investor, with the federal government getting slightly more than a 55 percent stake in the company in exchange for forgiving $10 billion in the automaker's outstanding federal loans. The United Automobile Workers' retiree trust would have just under 40 percent of the stock, under the G.M. plan.

The huge federal stake in G.M. — even if temporary — means that for all of Mr. Obama's protests that he is a reluctant investor, eager to fix the company and sell the controlling interest ( hoping for a hefty profit), he will be judged by whether his plan actually works.

Mr. Obama has said repeatedly that he is not an automotive engineer and has no desire to pick models, engines, factories or corporate governance structures. But while he may not be choosing automotive designs, he has already started dictating the company's direction.

The president has made it clear that G.M. must produce small, fuel-efficient, low-carbon-emitting cars — steps G.M. has taken only haltingly. Its vehicles range from the Cadillac Escalade, which gets 12 miles to the gallon in the city, to the experimental Chevy Volt, an electric car that it says will go 40 miles gas-free.

Members of Mr. Obama's auto task force say that even after the government owns a majority of the company, it will have no role in management. That, they say, will be farmed out to professionals, the work supervised by government-appointed members of a new G.M. board.

But at some point, some task force members acknowledge, the drive for profitability is likely to collide with Mr. Obama's fuel-efficiency and low-emission goals. G.M. produced heavy gas-guzzlers because they were among the most profitable in its line and, for a long time, the most popular. It is unclear whether smaller cars can be as profitable — or, for a few years, competitive with offerings from Toyota and Honda and a raft of inexpensive cars under development in China.

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"government-appointed members of a new GM board"... yikes...
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God GM just file for bankruptcy please!

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It kills me how always when the goverment does something it takes more people than the UAW to do it.

They will have to raise taxes just to pay for all the people over seeing the people doing the real work. LOL!

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If it gets the new GM back on track & the Government out of their business then by all means bankruptcy please!

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Ominous.

No, Camino, it just isn't. Remember the Trabant, that Eastern European P.O.S. that everyone east of the Iron curtain drove?

Rumor has it that they are going to build a pick-em up based on a passenger car in the reshaped GM. Running prototypes have been spotted with the three cylender from the previous Chevrolet Metro model. The new vehicle is said to resemble the Trabant in size, quality, and labor arrangements.

See, Camino, you really CAN get what you want from the new GM!

Chris

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...just get the HD version if you want to bring home a bag of dog food for Arkus in the bed, tho....

Chris

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It kills me how always when the goverment does something it takes more people than the UAW to do it.

They will have to raise taxes just to pay for all the people over seeing the people doing the real work. LOL!

I think the government has a real place in public life. To me, if you want to see a country without much government oversight, look at say, Somolia. However, I believe that the government should be smaller than it is now, and I believe regulations sould be simple and apply to everyone.

I do think that we are heading in the wrong direction on this, big time. The Japanese government and the German government each help their auto industry without this level of meddling, for instance.

Chris

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:scratchchin:

I think the government has a real place in public life. To me, if you want to see a country without much government oversight, look at say, Somolia. However, I believe that the government should be smaller than it is now, and I believe regulations sould be simple and apply to everyone.

I do think that we are heading in the wrong direction on this, big time. The Japanese government and the German government each help their auto industry without this level of meddling, for instance.

Chris

I am not total anti goverment. THey should be their to provide the basics. But when they want to run my life from when I am born till I die I have an issue with that. Also it is not my place to let people not be responsble for themselves. I don't mind someone getting help but lets not make them too comfortable so they will want to stand up on their own.

Also I have a grat issue on waste. My wife works for the county and if they were a company they would have gone bankrupt long ago. THe public is upset with the bail out but we do that to the goverment every time they run out of money and they raise out taxes.

Too much Goverment control leads to China, N Korea, Iran etc. Real fun places.

I just would like to see some common sense come back to goverment and society. Most people can name their own senator so they are willing to buy what ever anyone tells them.

There just is no accountablilty anymore in Society.

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...more than bankruptcy I just want a cure. I grew up around GM people worried about the company in the 1970's and 1980's...and I just want them to be healthy financially.

Chris

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Wow, for a second there I almost forgot that, when it comes to automotive writers, I don't really care what they're thinking on the subject of...

...ooo ice cream.

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