When giving thanks this holiday, never forget : Auto bailout’s pluses override minuses

November 26, 2013 at 1:00 am
Daniel Howes

Auto bailout’s pluses override minuses

Daniel Howes

The federal government’s exit from General Motors Co., set for the end of the year, may officially close the era of “Government Motors.”

But the expected $10 billion loss on American taxpayers’ $49.5 billion investment in the automaker won’t end raging philosophical debate on the auto bailouts, their cost or their necessity. Nor does the end of U.S. government ownership mean that GM’s restructuring is complete five years after its embattled management begged Congress for a lifeline.

GM’s workout isn’t done, as CEO Dan Akerson would be the first to attest. Despite 15 consecutive quarters of profitability, a solid balance sheet, a steady stream of new metal and critical acclaim for many new entrants, GM is still laboring to prove that its second chance is sustainable and a worthy investment.

Its shares continue to trade in a comparatively narrow range, less than $5 a share higher than their $33 initial public offering price in November 2010. Its troubled European operations, a chronic money loser, are still struggling, albeit with narrowing losses. Its corporate culture remains less nimble and more tolerant of mediocrity than it should be.

GM arguably still has too many brands chasing too few customers in the United States, the legacy of a multi-brand stable most of its competitors long ago abandoned. Its product development operation, while markedly improved, is still regarded by Akerson and top leaders as too bureaucratic.

Its sprawling personnel system — namely its ability to identify and promote promising young talent — too often is hobbled by the bad habits of its past, say senior executives. Instead of brooming under-performing managers, too many execs opt to “demote” under-performers, stymying ambitious underlings from moving into more senior roles.

GM’s restructuring is a process, not a destination. The end of federal ownership lifts restrictions on executive compensation and other perks easily manipulated by the optics of politics; it also could enable the company to pay a dividend and should impose a moratorium on excuses.

Three years ago this month, the new GM offered investors shares priced at $33 per share. Monday, GM closed at $37.65, a 14 percent increase over the initial offering price. Overall, the Dow Jones Industrial Average surged 43.7 percent over the same period, suggesting skepticism about GM’s turnaround in the era of government ownership.

Not for long. The winding down of Treasury’s stake in GM shares is likely to alter GM’s shareholder base more than it already has in anticipation of the government exit. Legendary investor Warren Buffett’s investment arm, Berkshire Hathaway Inc., now owns 40 million shares, or 2.9 percent of GM, and other investors are boosting their stakes in the automaker.

The implications: Smart money is demonstrating that it believes the new GM really is for real. And, second, the “Government Motors” rap will continue to recede with the sale of the government’s stake and the exhaustion of an ideological argument undermined by GM’s sales numbers, financial results and inconvenient facts decoupled from political point-scoring.

Five years on, critics of the Obama administration’s bailout — a reprise of the Bush administration’s own rescue — still contend a privately financed bankruptcy of the nation’s largest automaker could have been arranged precisely as the global financial machinery ground to a halt. Like where and from whom? They can’t say, which is the point.

Five years on, critics offer GM’s Chevrolet Volt, an extended-range electric car, as evidence the government would willingly dictate what GM should develop and build. The only problem? GM unveiled the Volt concept in January 2007, and former CEO Rick Wagoner announced plans to build the Volt before Obama was elected in November 2008, not after the president green-lighted the bankruptcy and bailout.

Five years on, GM and its performance stand as Exhibit One in the argument that the bailout saved more than a collection of assets. It rescued a domestic industry — GM, Chrysler Group LLC, the United Auto Workers, even Ford Motor Co. and the industry’s suppliers — from a collapse of epic economic proportions.

The bailouts, an unprecedented government intervention in a cornerstone industry, carry a politics all their own. Whether it all was worth a $10 billion loss to American taxpayers depends on who is answering the question, and for some the answer will forever be no.

But the economic reality of five years ago and the state of Detroit’s auto industry today demonstrate that there was something worth saving, however imperfect the extraordinary remedy.

daniel.howes@detroitnews.com

From The Detroit News: http://www.detroitnews.com/article/20131126/AUTO0103/311260019#ixzz2lt5SwLxS

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