By the time General Motors filed for Chapter 11 one week ago, its bankruptcy, the fourth largest in history, seemed all but inevitable. The company last turned a profit in 2004, has borrowed $19.4 billion from the government, and needed billions more. How the bankruptcy will affect GM's future, however, is less than certain. And with the U.S. government now its majority stakeholder, whether it can emerge successfully will affect far more than just Detroit.
According to the current plan, the "new GM" will be a smaller, sleeker company, shedding four brands and slashing manufacturing. "The days when General Motors would have 15 launches, of which we would count on five or six of them being hits and the rest of them being OK, are history," CEO Fritz Henderson told reporters this week. While that focus on quality seems smart, it's not yet known how a post-bankruptcy GM will fare. And some have questioned whether the company's new focus on cutting costs, including shutting 17 factories, is the most effective route. They point out that it can be difficult to simultaneously shed workers and facilities while innovating for the future. To help the 100-year-old auto giant function during its filing, the government is funneling it $30 billion more in return for a 60 percent ownership stake.
That investment has sparked debate across the country. "Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability?" asked House Republican Leader John Boehner, echoing a theme common among Republicans. The upside, of course, is that if the company re-emerges successfully, the government will reap the profits. But if the company's troubles continue, taxpayers lose. And regardless of the final numbers, risks in the meantime range from keeping politics out of business decisions to the possibility that the government might be tempted to continue to funnel money to GM to keep its investment afloat.
President Obama has been adamant that the White House won't be involved in GM's everyday decisions, insisting this week that he has "no interest" in running the automaker. That attitude also seems to be to the administration's advantage: The company can make decisions with profits in mind, and any potential buyers will have a clearer idea of what the company would look like as a private entity. But despite the best intentions, experts say, some decisions ahead, like the factory shutdowns, won't sit well with the citizens they affect or their representatives. Choices could also miff others in the market. "Any time you help one competitor in a tight market, you automatically hurt every other competitor," which could spark protests and make it harder to reach the best business decisions, says Brookings Institution analyst Douglas Elliott. Then there's the question of how much the administration's own agenda, like increasing fuel efficiency, will influence GM.
It's hardly the first time that the government has walked that tightrope. But this level of engagement is unprecedented. And for now, it's unknown how long it might last.
Hopes have been high for the bankruptcy process itself to be relatively quick, much like Chrysler's. But even that smaller company's filing hit a speed bump today when the Supreme Court temporarily delayed its merging with Fiat, showing how thorny the process can be. For now, fingers are crossed for a fast filing—and for the White House to refrain from picking out paint for the next car model.