General Motors Corp Chief Executive Officer Rick Wagoner’s options for the biggest US automaker have dwindled to two, neither imaginable when he took the top job in 2000: Nationalisation or bankruptcy.
Either way, the company is slipping away from him.
Congress holds GM’s fate as leaders rush to vote on a rescue plan as soon as this week. After saying bankruptcy would be a prelude to shutting the doors, Wagoner is ready to accept a so-called car czar who will dictate how GM is managed.
“They either have to liquidate, or roll the dice and swallow whatever a government-run car company is going to look like,” said Clint Currie, a transportation analyst for Stanford Group Co in Washington. “The only thing we can know for certain is they probably won’t like a lot of the decisions. They are going to lose control of their company.”
Approval of a bailout for GM and Chrysler LLC would put automakers under US direction for the first time since 1980, when the former Chrysler Corp agreed to federal oversight in exchange for $1.8 billion in loan guarantees. GM, reeling from almost $73 billion in losses since 2004 and a 22 per cent plunge in US sales this year, says it will run out of money this month without a cash infusion. In return, GM says it will accept giving warrants worth 20 per cent of the $10 billion being sought in loans and appointment of a czar who would have to review and approve all large expenditures. “It will be a whole new ball game,” said Thomas Stallkamp, who came to Chrysler from Ford Motor Co in 1980 as a government loan board took over.
“They are going to have a continuous battle between what the government wants and their plan in terms of investments, product choices and other issues.”
Wagoner, 55, the longest-tenured CEO at a US automaker, already has been forced to agree to work for $1 a year, park his corporate jet and drive most of a 10-hour trip to Washington to appeal for aid. Senate Banking Committee Chairman Christopher Dodd, the Connecticut Democrat whose panel is writing the rescue law, has said Wagoner should resign. Other lawmakers including Republican Senator Richard Shelby of Alabama say Congress should reject the loans and let the GM go bankrupt instead. Such a course likely would end with Wagoner’s ouster along with that of GM’s board.
Federal Reserve Chairman Ben S. Bernanke broached the option of bankruptcy yesterday as he signaled opposition to extending central bank loans to automakers should a government bailout fail.
Bernanke’s Counsel
Congress should consider a “range of possible policy actions” besides direct aid, including mergers or a government- assisted “orderly bankruptcy reorganization,” Bernanke said in a letter to lawmakers.
Wagoner told Congress in two rounds of hearings that GM couldn’t reorganize under Chapter 11 because buyers would shun an automaker in court protection, dooming the company to liquidation. Lead director George Fisher said Dec. 3 that GM looked at bankruptcy. It’s “way down the list,” he said.
House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada have said bankruptcy isn’t acceptable. Michigan Senator Carl Levin and a White House official said late yesterday that Democrats and President George W. Bush’s administration agreed in principle to approve the loans.
Compromises
The accord probably won’t require GM and other automakers to drop their opposition to state rules on carbon-dioxide emissions, and czar approval of company spending, once set at projects of $25 million and more, will have a significantly higher, undisclosed threshold, the official said.
Should the Democratic leaders steer the plan through Congress, GM still will find plenty to dislike.
Drafts of a proposed loan package include provisions to let the czar force a bankruptcy without progress on restructuring and explore whether excess factory capacity could build buses or passenger-rail cars. Automakers also would be barred from paying dividends and would have to limit executive pay and bonuses.
In the 1980s, Chrysler’s loan board tried to veto models such as minivans as U.S. consumers began tilting away from compacts and back toward larger autos, a lesson for automakers today, said Stallkamp, the former Chrysler and Ford executive.
‘Serve the Market’
“They have to thread the landscape between what the market wants and what the government sees for the future,” said Stallkamp, who is now a partner at buyout firm Ripplewood Holdings LLC. “They may be told to make cars that the public doesn’t really want to buy and other companies that don’t take the loans will be free to serve the market.”
That might lead to the paradox of Toyota Motor Corp., the biggest seller of gasoline-electric autos, boosting truck sales while GM hawks hybrids, Stallkamp said.
GM gained 18 cents, or 3.9 percent, to $4.88 at 9:52 a.m. in New York Stock Exchange composite trading. While the shares tumbled 81 percent this year before today, they have rebounded since reaching a low of $2.79 on Nov. 19.
House Financial Services Chairman Barney Frank said automakers accepting federal money would face more scrutiny of plans to invest outside the U.S. GM, which first sold more than half its volume outside its home market in 2005, is now at more than 60 percent and plans to expand in India, China and Russia.
‘Absolutely Necessary’
“Some form of oversight is absolutely necessary,” GM North American President Troy Clarke said yesterday in an interview on Bloomberg Television. “That was included in the proposal that we sent to Congress. We welcome that oversight.”
Former Fed Chairman Paul Volcker would be a good choice to provide it, Pelosi suggested yesterday when asked by NBC who Bush should name as the auto czar.
While Clarke declined to assess Volcker as a nominee, the GM executive said the automaker would be “perfectly comfortable” with an overseer who understands his or her responsibility “to the taxpayers.”
GM may be able to endure federal oversight with a czar knowledgeable about the industry, Stallkamp said. Chrysler paid back the loans in 1983, seven years early, and the government made a profit in the 1980s.
“They have to pay this thing back quickly as possible and get out from under government control,” Stallkamp said.
To contact the reporter on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net
