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Obama: Nationalization of GM to be short-term
2009-06-01
WASHINGTON - 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. Muzi.com News 10090496-1 (muzi.com)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 U.S. work force and 40 percent of its dealerships. Muzi.com News 10090496-2 (muzi.com) "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. Muzi.com News 10090496-3 (muzi.com) 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. Muzi.com News 10090496-4 (muzi.com) 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 ownership. Muzi.com News 10090496-5 (muzi.com) "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." Muzi.com News 10090496-6 (muzi.com) Yet, the U.S. could end up holding the shares for some time. Muzi.com News 10090496-7 (muzi.com) 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 press secretary. Muzi.com News 10090496-8 (muzi.com) "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." Muzi.com News 10090496-9 (muzi.com) Steve Rattner, head of the president's auto task force, later told reporters: "We don't have a specific timetable, we don't have a specific deadline." Muzi.com News 10090496-10 (muzi.com) "The outcomes are driven heavily by things that are outside our control, particularly market conditions, car sales, overall economy and obviously the performance of this company," Rattner said. He said the government would retain the right to vote its share on major matters such as mergers or acquisitions but that day-to-day operations "are all going to be left to management." Muzi.com News 10090496-11 (muzi.com) 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. Muzi.com News 10090496-12 (muzi.com) "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." Muzi.com News 10090496-13 (muzi.com) 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 President Obama." Muzi.com News 10090496-14 (muzi.com) 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. Muzi.com News 10090496-15 (muzi.com) 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. Muzi.com News 10090496-16 (muzi.com) 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. Muzi.com News 10090496-17 (muzi.com) 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." Muzi.com News 10090496-18 (muzi.com) 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 aggressive action. Muzi.com News 10090496-19 (muzi.com) 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. Muzi.com News 10090496-20 (muzi.com) 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. Muzi.com News 10090496-21 (muzi.com) Most nationalizations have been temporary. But at least one has endured -- Amtrak rail passenger service. Muzi.com News 10090496-22 (muzi.com) 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. Muzi.com News 10090496-23 (muzi.com) "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." Muzi.com News 10090496-24 (muzi.com) "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. Muzi.com News 10090496-25 (muzi.com) 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, Rick Wagoner. Muzi.com News 10090496-26 (muzi.com) 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." Muzi.com News 10090496-27 (muzi.com) GM plans to focus on four core brands -- Chevrolet, Buick, Cadillac and GMC -- and get rid of the Pontiac, Saturn, Hummer and Saab lines. Muzi.com News 10090496-28 (muzi.com) 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. Muzi.com News 10090496-29 (muzi.com) "Many experts said that a quick, surgical bankruptcy was impossible: They were wrong," Obama said. Muzi.com News 10090496-30 (muzi.com) GM plans to permanently close nine more plants and idle three others to trim production and labor costs. Muzi.com News 10090496-31 (muzi.com) 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. Muzi.com News 10090496-32 (muzi.com) 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. Muzi.com News 10090496-33 (muzi.com) 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. Muzi.com News 10090496-34 (muzi.com) GM's bankruptcy filing came amid some signs of economic improvement. Muzi.com News 10090496-35 (muzi.com) The Dow Jones index closed up 221 points as investors looked past GM's woes to better-than-expected readings on U.S. manufacturing, consumer spending and construction spending. Muzi.com News 10090496-36 (muzi.com) 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 bankruptcy filing. Muzi.com News 10090496-37 (muzi.com) 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 government-led bankruptcies. Muzi.com News 10090496-38 (muzi.com) Obama predicted that a new well-managed GM would emerge able to "out-compete automakers around the world." Muzi.com News 10090496-39 (muzi.com)
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