Obama's GM gambit carries political risks

June 02, 2009 12:00:00 PM

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President Barack Obama's gamble in ushering iconic US automaker General Motors into bankruptcy restructuring comes with political risks, management uncertainty and potential conflicts of interest.

Under the deal, the US government will own a 60 percent stake of the company, in return for injecting 30 billion dollars into the "new GM" on top of nearly 20 billion dollars already loaned to the ailing firm.

The GM bankruptcy, formally launched Monday, was the latest in a string of US government bailouts of once-mighty firms, adding up to one of the most sweeping federal interventions in America's economic life for generations.

The government controls swathes of the financial sector through firms like American International Group (AIG), the auto industry with GM and Chrysler and the financial sector with stakes in crisis-hit banks and mortgage firms.

If the plan produces a leaner, debt-free and innovative "new GM," Obama could lay claim to saving a quintessential piece of American business history.

But his gambit could expose the administration to damage if things go wrong.

Some industry observers warn a bureaucracy as vast and slow-moving as the US government is ill-equipped for nimbly navigating commercial markets.

Obama seemed to address those concerns on Monday.

"What we are not doing -- what I have no interest in doing -- is running GM," Obama said, saying he hoped GM's bankruptcy would permit a remodeled firm to emerge under its own power "quickly."

Obama aides said there would be no attempt to interfere in the day-to-day operation of GM.

The administration "isn't picking out Chevy Malibu's colors for next year," said White House spokesman Robert Gibbs, referring to a well-known GM brand.

The GM restructuring also poses potential conflicts of interest, given that the government will serve as GM's savior and its regulator.

Some Obama critics warn the administration, which has introduced tough new auto emissions rules for US car makers, may try to dictate development of new generation vehicles for which there is yet no big market.

Obama's foes sought to paint the president as ravenously consuming private enterprises in a government power grab.

"This agreement may buy some time, but does nothing to ensure GM's success," said John Boehner, the top Republican in the House of Representatives.

"The only thing it makes clear is that the government is firmly in the business of running companies using taxpayer dollars.

"Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability?"

Republican strategist Tony Fratto, a former Bush administration spokesman, also highlighted criticism of Obama.

"President Obama will again assert that he has no interest in running an auto company," Fratto wrote in a commentary for CNBC.

"But like it or not, he has the wheel, and every seat is filled with taxpayers along for the ride."

Political risks of Obama's move were suggested by a Rasmussen Reports poll, showing only 21 percent of voters nationwide back a structured government bankruptcy for GM with 67 percent opposed.

Another complication for the administration is the location of GM manufacturing and related supply industries in rust-belt states hammered by the recession.

The prospect of a government-run GM mandating large-scale restructuring and jobs cuts could expose the administration to political damage in states like Michigan and Ohio which habitually play a key role on the US electoral map.

Mindful of the risk, a list of Obama administration officials are this week fanning out across the Midwest to auto communities to discuss the restructuring effort.

And Democratic strategists are no doubt desperate to offload government positions in GM and other firms as soon as economic conditions, and the health of individual firms permits.

The strategy is also being closely watched in the business community.

"I think it's a delicate balance," said Anne Mulcahy, CEO of Xerox, on Sunday's edition of NBC's "Meet the Press."

"I think all of us understand the need for the government to intervene and take the actions they did, whether it was for the financial services industry, or the stimulus plan. But I also think there's a need for an exit plan."