Former Government Motors CEO Ed Whitacre – who earned notoriety two years ago when he played a starring role in the company’s fraudulent ad campaign claiming that it had repaid its bailout in full – evidently no longer wants the government as a crony in his erstwhile capitalist venture. He is telling the Obama administration to declare victory, sell its outstanding shares in the company and get out. Now. In a Wall Street Journal op-ed this morning he argues that government ownership is debilitating the company:
TARP is funded by taxpayers, so there are many rules about how that money can and can't be used. The result: GM spends an awful lot of time checking in with the people who administer TARP over everything from hiring to executive compensation and management. For a global company, that adds up to a lot of distraction.
Seriously? How can that be? After all, didn’t President Obama -- whose “tongue,” Oprah assured, us “is dipped in unvarnished truth” -- personally, publicly and repeatedly state that he was a “reluctant shareholder” who had “zero interest in running the company.”
“Our goal is to get GM back on its feet, take a hands off approach and get out quickly,” the president said when he handed it tens of billions of taxpayer money.
And again: "GM will be run by a private board of directors and management team with a track record in American manufacturing that reflects a commitment to innovation and quality.”
Who’d have thunk it!
Whitacre is right of course that so long as TARP money is wrapped up in GM, the company will never shake its "Government Motors" image: “That label, as competitors and GM employees are keenly aware, is code for one thing: ‘GM is a failure.’”
Be that as it may, there is a slight problem with Whitacre’s proposal – namely that selling the government’s outstanding 26% equity in the company at the current stock price would translate into…. oh about $25 billion in losses for taxpayers, give or take a few billion. (This is not counting the illicit $15 billion tax writeoff the company got during bankruptcy.) Whitacre implies that there is no shame in the administration owning up to these losses. They are, after all, a small price for avoiding economic armageddon:
Since 2009, when the government stepped in with emergency funding, GM has gone from down on its knees in bankruptcy to solvent and standing strong. By that measure alone, Treasury's $50 billion gamble on General Motors has been a resounding success.
Millions of jobs were saved, along with the U.S. auto industry as a whole: GM is the backbone of the domestic vehicle business, so if the company had failed, other automakers and suppliers would likely have followed. The courageousness of that effort, which started under President Bush and continued in force under President Obama, can't be underemphasized.
But if anyone showed any courage here it wasn’t Bush or Obama but the taxpayers. So isn’t it time for GM to respond to their courage with some of its own?
Thanks to the bailout, GM, a company that was running on empty before the bailout, is sitting on $33 billion in cash reserves and has little debt – a luxury that its non-bailed out competitors who pay hundreds of millions in debt service costs annually don’t enjoy. So here’s what GM should really do if it wants to bury its label as “Government Motors” and prove that TARP has really helped it "stand strong": It should announce that it will compensate taxpayers for the losses they incur from the sale of their outstanding stock by “gifting” $25 billion of its reserves to the Treasury’s deficit reduction program. This still won't compensate them for their opportunity cost, but it'll be something!
If GM really is in good shape and has a credible business model for success, it should have no trouble obtaining a loan at competitive rates from private debt markets, just like all the other automakers are doing. If it can’t, after all the help it has gotten, then shouldn't it do the decent thing: get out of the car business?