The U.S. government is becoming a majority stakeholder in General Motors, an iconic fallen titan of American automobile manufacturing. GM filed for bankruptcy Monday as part of a plan crafted by the Obama administration to make the company smaller, more competitive, and ultimately profitable. The plan includes a massive federal investment in the automaker.
Two years after losing its status as the world's biggest carmaker, General Motors surrendered a 60 percent ownership stake to the U.S. government in return for $30 billion of federal funds to continue operations and finance an ambitious restructuring effort. GM also filed for bankruptcy to shield it from creditors while the company retools itself. After years of declining car sales, shrinking market share, and ballooning costs and financial obligations, GM's debt is twice as large as the total value of its assets.
The government's cash infusion comes on top of $20 billion of federal loans whose repayment is far from assured. Canada's government is also taking an ownership stake in GM, as is the United Auto Workers union. Existing GM stock owners will lose their investment.
At the White House, President Obama said he did not want to see American car manufacturing disappear, but stressed the need for major reform of the industry. He explained the rationale for acquiring GM shares.
"Instead of taking so much stock in GM, we could have simply offered the company more loans. But for years, GM has been buried under an unsustainable mountain of debt," he said.
Mr. Obama said the U.S. government is acting as a "reluctant" shareholder.
"What we are not doing, what I have no interest in doing, is running GM. GM will be run by a private board of directors and management team with a track record in American manufacturing that reflects a commitment to innovation and quality," he added.
The president expressed confidence in GM's ability to restructure and thrive. That confidence was echoed by the head of the company, Fritz Henderson.
"This new GM will be built from the strongest parts of our business, including our best brands and our very finest products. We will have far less debt, fully-competitive labor costs, and the ability to generate sustained and positive bottom-line performance [profits]," Henderson said.
Not everyone is cheering. Among Republicans, House Minority Leader John Boehner said the administration's plan "makes clear is that the government is firmly in the business of running companies using taxpayer dollars."
Others said the plan is the best way to confront a disastrous situation and prevent catastrophic economic losses. Jennifer Granholm is governor of Michigan, where America's automobile industry is headquartered, and a state with the highest unemployment rate in the country.
"This is a really, really tough day. But our fortunes, meaning Michigan's fortunes and Gm's fortunes are inextricably bound together. And so at least now we can see the end of the slide [deterioration of auto industry]," she said.
Granholm spoke on CBS' "Early Show".
Along with filing for bankruptcy, GM announced the closing or idling of a dozen plants. The company's workforce stands at roughly 60,000 employees, down from more than 600,000 in the 1970s.
GM's drastic actions came as a painful blow to many workers. But some said the moves were inevitable.
"We knew it [bankruptcy] was coming. Just a matter of time," said one worker.
Another GM worker said Monday's turn of events would have been unimaginable just a few years ago.
"We kind of work for the government now. It is weird," he said.
Meanwhile, a federal judge has approved the sale of assets of America's number-three carmaker, Chrysler, to Fiat of Italy. Chrysler filed for bankruptcy earlier this year.
Nearly all carmakers, both domestic and foreign, have reported sharply lower vehicle sales coinciding with the global economic slowdown.