WASHINGTON (AP) - In a defining moment for American capitalism,
President Barack Obama ushered General Motors Corp. into bankruptcy
protection Monday and put the government behind the wheel of the
company that once symbolized the nation's economic muscle.
The fallen giant, the largest U.S. industrial company ever to
enter bankruptcy, is shedding some 21,000 jobs and 2,600 dealers.
Sparing few communities, the retrenchment amounts to one-third of
its work force and 40 percent of its dealerships.
"We are acting as reluctant shareholders because that is the
only way to help GM succeed," Obama said of the temporary
nationalization of the 100-year-old company.
President Obama lauded what he called a "viable, achievable plan that
will give this iconic American company a chance to rise again" as
GM followed Chrysler LLC into bankruptcy court. Of Detroit's "Big
Three" automakers, only Ford Motor Corp. has avoided bankruptcy
restructuring and has not taken federal bailout money.
The prepackaged GM bankruptcy deal - crafted by the
administration, the company, the United Auto Workers union and a
group of bondholders - would give the U.S. government a 60 percent
controlling stake in what was once the world's largest automaker.
An additional 12.5 percent would be under Canadian government
"What I have no interest in doing is running GM," Obama said.
His only goal, he said, was to get GM back on its feet and then
"to get out quickly."
Yet, the U.S. could end up holding the shares for some time.
Neither Obama nor his spokesman offered an indication of how
long the government's involvement with GM would last. "I don't
know that there is a timeline," said Robert Gibbs, the White House
"He has a strong obligation to ensure that there is a
management structure in place that is making smart business
decisions," Gibbs said. "Is the president going to thumb through
engineering reports and each page of the annual report? No."
With the U.S. on track to be GM's new owner, the road ahead for
the troubled automaker was an uncertain one - with a heavy
potential for conflicts and many risks for taxpayers.
"The agreement may buy some time, but does nothing to ensure
GM's success," said House Republican Leader John Boehner of Ohio.
"The only thing it makes clear is that the government is firmly in
the business of running companies using taxpayer dollars."
Longtime consumer advocate Ralph Nader, an early critic of
General Motors, said on CNBC that the new arrangement may give GM a
clean slate, but it also could become "a political boomerang for
Obama said he recognizes that even the temporary nationalization
of GM "may give some Americans pause." But he called it
preferable to letting the company fail outright - or giving it more
and more bailout loans, money it has gone through rapidly.
The administration will provide GM with an additional $30
billion in aid to help it restructure in addition to the $20
billion the auto maker had already borrowed from the Treasury. GM
will also get $9.5 billion from Canada.
If all goes according to plan, on top of the 60 percent U.S.
stake and Canada's 12.5 percent, the UAW would get a 17.5 percent
stake and bondholders would end up with the remaining 10 percent.
Existing stockholders would be wiped out.
Obama said the nation's severest economic crisis since the Great
Depression had "crippled private capital markets and forced us to
take steps in our financial system - and with our auto companies -
that we would not have otherwise even considered."
That has put the government "in the unwelcome position of
owning large stakes in private companies." But he said "their
survival and the success of our overall economy" depended on such
It is one of the largest peacetime nationalizations. The
government has taken shares in railways, steel mills, coal mines
and foreclosed homes - but most of these came at times of war.
The government did take over failed savings and loans in the
1980s and, more recently, mortgage giants Fannie Mae and Freddie
Mac. In the current crisis, it has also taken significant stakes in
banks and insurer American International Group.
Most nationalizations have been temporary. But at least one has
endured - Amtrak rail passenger service.
Obama pledged that, despite its ownership stake, the government
would not try to micromanage what is still one of the world's
largest automakers despite its loss of market share to foreign
competitors over the past two decades.
"GM will be run by a private board of directors and management
team," Obama said. "They - and not the government - will call the
shots and make the decisions about how to turn this company around.
The federal government will refrain from exercising its rights as a
shareholder in all but the most fundamental corporate decisions."
"We're fine with that," Fritz Henderson, president and CEO of
GM, told reporters in New York after the company filed for
bankruptcy protection. Henderson said he hoped a leaner, quicker GM
could emerge from bankruptcy protection in 60 to 90 days.
The new GM would be formed "from the strongest parts of our
business, including our best brands and products," said Henderson,
who took over the top job with the approval of the Obama
administration, which engineered the ouster of his predecessor,
Henderson declined to offer a firm timeline for how long it
would take the government to sell its stake in GM, but he said:
"This is a question of years, not months."
GM plans to focus on four core brands - Chevrolet, Buick,
Cadillac and GMC - and get rid of the Pontiac, Saturn, Hummer and
The company's Chapter 11 bankruptcy protection filing came a day
after a judge gave smaller rival Chrysler approval to sell most of
its assets to Italy's Fiat. That moved Chrysler closer to exiting
from court protection, possibly later this week, Obama noted.
"Many experts said that a quick, surgical bankruptcy was
impossible: They were wrong," Obama said.
GM plans to permanently close nine more plants and idle three
others to trim production and labor costs.
Six of the plants are in GM's home state of Michigan, already
hard-hit by job cuts in the auto industry. GM's assembly plant in
Wilmington, Del., will close in July, followed by its Pontiac,
Mich., pickup truck plant in October.
Assembly plants in Spring Hill, Tenn., and Orion, Mich., will
end production this fall but remain on "standby," meaning workers
can be called back should the company need to increase production.
One of those plants would be retooled to produce a subcompact
vehicle that GM had originally planned to build in China.
The closings will bring GM's U.S. factory count to 34 by the end
of 2010, down from 47 at the end of 2008. The company will shutter
an additional plant by the end of 2012.
GM's bankruptcy filing came amid some signs of economic
The Dow Jones index was up more over 200 points in mid-afternoon
trading as investors looked past GM's woes to better-than-expected
readings on U.S. manufacturing, consumer spending and construction
In a painful twist, the Dow's rise came as GM itself was in the
process of being removed from the roster of 30 Dow stocks - to be
replaced next week by Cisco Systems Inc. - as a consequence of its
Top executives from General Motors and Chrysler will appear
before a Senate committee Wednesday to address concerns about
dealership closings as the two automakers work through
Obama predicted that a new well-managed GM would emerge able to
"out-compete automakers around the world."
And, paraphrasing an oft-quoted line in 1953 by then GM chief
Charles Wilson, Obama said: "And when that happens, we can truly
say that what is good for General Motors and all who work there is
good for the United States of America."
Associated Press writers Ken Thomas, Jim Kuhnhenn and David Espoin Washington and AP Auto Writer Kimberly S. Johnson in Detroit
contributed to this report.
(Copyright 2009 by The Associated Press. All Rights Reserved.)