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Can GM succeed as ‘Government Motors’?

Can GM succeed as ‘Government Motors’?
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First Published: Sun, May 31 2009. 09 39 AM IST
Updated: Sun, May 31 2009. 09 39 AM IST
Washington: General Motors, readying a massive bankruptcy filing backed by billions in public funds, faces a complex set of challenges as a virtually nationalized “Government Motors,” analysts say.
With the US government expected to hold as much as 72.5% of the new firm that would emerge from bankruptcy, analysts say a big question is whether GM can concentrate on the difficult auto marketplace.
“The tricky part is to leave day-to-day management to the executives of the company,” said Jeremy Anwyl, chief executive at auto research firm Edmunds.com.
For the government, he said: “the temptation is to influence product decisions based on political considerations instead of market considerations, and that’s always a danger.”
Anwyl said it is too soon to tell how the matter will be handled by the administration of President Barack Obama, which has pledged to get out of the business as soon as GM gets back on its feet.
David Cole, chairman of the Michigan-based Center for Automotive Research, said the government officials “are smart, dedicated people, but they can’t learn the key issues of this industry in a short time.”
Cole said the government can succeed if it focuses on the goal of restoring profitability, getting taxpayer money repaid and then getting out of GM.
“If the government forces a company to go out of step with the reality of the marketplace, that’s a problem,” Cole said.
“If you force the industry to build products they can’t sell profitably, that’s a problem.”
Cole said it was “almost unavoidable that the government will try to superimpose other agendas” on the carmaker.
Cole and Anwyl said it would be a mistake for the government to use its role as the financial backer of GM or Chrysler to push the firms into building certain types of cars to meet environmental or other goals because consumer demands can change quickly.
Anwyl said that with the current level of fuel prices, demand for small, fuel-efficient cars is decreasing. He added the Obama administration’s effort to further boost fuel efficiency may hurt efforts to help Detroit automakers become profitable again.
Peter Cohan, a management consultant and faculty member at Babson College, said GM must keep a focus on “developing a line of products that can compete with Toyota, Nissan and the rest of the world.”
“I hope the government doesn’t push GM to make hybrids just for the sake of doing it but because it will be profitable strategy ... They need to design and build a vehicle that will last longer than a Toyota with lower maintenance costs.”
Although some GM critics blame existing management for its woes, Anwyl said the carmaker’s biggest problems stemmed from decisions made years or even decades earlier.
“These festered over the years and GM never really confronted them,” he said.
The US government is expected to invest an additional $ 30 billion to help GM on top of its $20 billion in loans, with most of the funds being converted to the equity stake of as much as 72.5%.
The US stake could be reduced by a share given to the governments of Canada and Ontario province, expected to pitch in with around $9 billion.
John Pottow, a law professor and bankruptcy specialist at the University of Michigan, said the proposed ownership structure raises a lot of hackles.
“Everyone is terrified of government mandates as opposed to market forces,” he said. “But I take it as face value the government saying they want to be reluctant shareholders.”
GM vice chairman Robert Lutz said the administration is taking appropriate measures to help an industry vital to the US economy, and praised Obama’s Automotive Task Force.
“Their prime goal is not to gain government control of the automobile industry,” he said.
“They absolutely don’t want that ... their number one goal is to make us successful. There finally is a realization that our country cannot remain economically strong and militarily strong and have a global impact if it’s not backed up by wealth-producing industries.”
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First Published: Sun, May 31 2009. 09 39 AM IST