A humbled American icon enters bankruptcy

What happened

Culminating a tense, four-month showdown with the White House, General Motors filed for Chapter 11 bankruptcy this week and gave the government 60 percent of its stock in return for $30 billion in additional bailout funding. In court papers, GM, once the world’s largest manufacturer and an icon of American industry, disclosed that its $82 billion in assets were swamped by $173 billion in liabilities. It’s the largest-ever bankruptcy of a U.S. industrial company and the fourth largest of any kind, and it follows by a week the filing of its smaller rival Chrysler Corp. Its impact reverberated across the country, as workers and communities braced for layoffs of 21,000 employees and the closing of 17 GM plants.

The filing came after Obama’s automotive task force rejected the second of two reorganization plans submitted by GM management, which the Obama administration said did not adequately shrink the company in the face of declining sales and demand for new cars. Under the administration’s plan, the federal government and the taxpayers become the company’s principal owner, with smaller shares awarded to the United Auto Workers union, the governments of Canada and Ontario, and holders of $27 billion in bonds. President Obama hailed the filing as “the beginning of a new GM,” but warned that its reorganization would be “painful.”

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What the editorials said

In unilaterally setting the rules for GM’s bankruptcy, the administration is “coming dangerously close to financial engineering,’’ said The Washington Post. Just compare the White House’s treatment of the UAW—a longtime Democratic ally—with its “bullying” of bondholders. The autoworkers, whose remaining claims against GM total $10 billion, get 39 percent of the company, while bondholders, owed $27 billion, get only 10 percent. That kind of strong-arming “could convince future investors that the last thing they want to do is put money into any company” owned or influenced by Uncle Sam.

Second-guess the administration all you want, said the Toledo Blade, but there’s no denying Obama’s skill in controlling the fallout from GM’s bankruptcy filing. “Through a combination of loans, speeches, and psychological nudging,” the president prevented “panic on Wall Street, despair on the part of consumers, and a chain reaction affecting suppliers.” To be sure, GM’s bankruptcy is a tragedy for its employees and for the communities in which it operates. But thanks to Obama, it’s not a cataclysm.

What the columnists said

The administration’s automotive task force has compelled GM and the unions “to make difficult decisions that they should have made themselves long ago,” said Paul Ingrassia in The Wall Street Journal. But the company’s new owners are already falling prey to “mission creep,” by demanding that GM focus on making small, “green” cars. GM “should get just one marching order from the government: Earn enough money so taxpayers will recover as much of their investment as possible.”

Obama’s plan leaves in place the bloated, change-resistant corporate culture that doomed GM in the first place, said David Brooks in The New York Times. Those “unquantifiable but essential attitudes, mind-sets, and relationship patterns” blinded the company to marketplace realities, even as its share of the U.S. car market fell from 54 percent to 19 percent. Instead of rooting out these bad habits, Obama has placed a 25-year company veteran in charge, reporting to the very union that stuck the company with labor costs that crippled it.

Can we lay to rest the lie that the autoworkers “made out like bandits”? asked Dean Baker in Politico.com. The union is giving up billions that it won fair and square through negotiations, and many workers “will be losing retiree health benefits for which they already worked decades.” Let’s remember that the complaints are coming from “speculators who just bought GM debt at steep discounts.” They gambled and lost, so please spare us the whining.

What next?

The White House said it has no plans to maintain ownership of GM, and that it hopes to start selling off its holdings in the company in about 18 months and completely divest within five years. Meanwhile, it is already seeking buyers for unwanted parts of GM, including the Pontiac, Hummer, and Saab brands. Hummer has been sold to a Chinese manufacturer, in return for its promise to continue making Hummers in the U.S.