Published on The Weekly Standard (http://www.weeklystandard.com
General Motors is no longer ‘Government Motors,’ if it ever was. So why won’t the Obama administration sell its GM stock?
April 2, 2012, Vol. 17, No. 28
The folks at General Motors are blessed with more foresight than you might have suspected. They were prepared when Vice President Joe Biden wanted to address a United Auto Workers rally at the GM plant in Toledo, Ohio, that manufactures transmissions. Sorry, they informed the vice president’s office, but we have a corporate policy that prohibits campaign events at any GM facility. So on March 15, Biden spoke to union members in Toledo at the main hall of UAW Local 12.
The policy is a product of post-bankruptcy General Motors, the company that wants to build cars and trucks and stay as far away from campaign politics as possible, especially presidential politics. The rule was instituted out of fear that President Obama, Biden, and administration officials would seek to use GM plants as campaign backdrops. And Republicans and conservatives—potential car buyers!—would see GM showrooms as Obama’s turf and stay away. Given the partisan bombast in Biden’s speech, one can understand their apprehension.
“Mitt Romney, Rick Santorum, and Newt Gingrich—these guys have a fundamentally different economic philosophy than we do,” Biden said. “Simply stated, we’re about promoting the private sector. They’re about protecting the privileged sector. We are for a fair shot and a fair shake. They’re about no rules, no risks, and no accountability.”
Worse, Republicans were ready in 2009 to let the American auto industry collapse, at the cost of 1 million jobs, he said. “But the guy I work with every day, the president, he didn’t flinch. This is a man with steel in his spine. . . . He made the tough call and the verdict is in.” Obama saved GM, Chrysler—and even Ford, though it received no money in the government bailout of the auto industry.
Here we see the Obama reelection drive in high gear, only to be outmaneuvered by GM. Obama routinely exploits the auto rescue as a central talking point in his quest for a second term. It dominates his campaign in the industrial Midwest. The Big Three, having averted destruction, are now thriving, and the president is seeking full credit. “It’s the only domestic policy success the man has had in his first term,” an auto analyst says.
But there’s another aspect of the Biden episode that’s enormously revealing. The Obama administration still owns 26 percent of General Motors’s stock. Yet GM officials weren’t afraid to tell the White House, No, you can’t use our facility. And this reflects a larger truth about GM: It is free from control by the Obama administration.
It’s not Government Motors anymore. Nor is the green-tech Volt—part electric, part gas powered—being produced at the insistence of the administration. The Volt is not an Obamacar or an Obamamobile. It’s been in the GM pipeline since 2006. Back then, Obama was a senator and GM needed an answer to a political environment that frowned on SUVs and trucks, the company’s gas-guzzling mainstays.
GM board members and management tell the same story about the Obama administration. It “has been absolutely true to its word to stay out of the business,” says David Bonderman, a Texas financier and board member. “They didn’t attempt to run the company,” says Ed Whitacre, CEO for nine months after the company emerged from bankruptcy in 2009. “They didn’t attempt to micromanage.” The current CEO, Dan Akerson, is more emphatic. “I will testify in front of the good Lord that this administration has never had a presence in the boardroom or any input in the operation of the business,” he told a House Oversight and Government Reform subcommittee in January.
Nor has the administration put any government officials on the board of directors. Akerson, by the way, is a Republican. GM keeps Washington abreast of its activity in the car business, since the government is still a large shareholder. And administration officials show up for annual GM shareholder conferences. That’s about it. There’s a tie, but it doesn’t bind.
The “new GM” has crossed the Obama administration repeatedly. Though the president has often expressed his fondness for the Volt, GM has suspended production of the vehicle for five weeks, with 6,000 unsold. This decision clashes with Obama’s goal of 1 million plug-in cars on the road in 2015. According to the Department of Energy’s blueprint issued last year, this would include 505,000 Volts. That goal was always unattainable. Now an Energy spokesman says it’s “no longer up-to-date.” Only 7,671 Volts were sold in 2011 and 1,626 in January and February this year. Sales appear to have picked up a bit in March.
In November 2009, the GM board reversed its decision to sell its European car division. That division’s main car, the Opel, is built in Germany, and the sudden change of plans caused a bitter backlash in Germany and embarrassed the White House. German chancellor Angela Merkel, who had approved the sale, was visiting with Obama when the decision to keep GM Europe was announced.
Eight months later, GM acquired AmeriCredit to, as its press release said, “meet customer demand for leasing and non-prime financing for GM vehicles.” This put GM in direct competition with its former financing arm, GMAC, now known as Ally. The government owns a large chunk of Ally stock.
Despite these displays of independence, GM has been unable to escape Obama’s shadow. The problem here is Obama. He treats GM as an adopted child, the Volt as his pet vehicle. He’s visited three GM plants as president. Speaking to a UAW audience in Washington in February, Obama recalled getting “inside a brand new Chevy Volt fresh off the line. . . . It was nice. I’ll bet it drives real good.” He actually drove it 10 feet.
Obama said the Secret Service wouldn’t let him take the Volt out for a spin. But, he promised, “five years from now when I’m not president anymore, I’ll buy one and drive it myself.” Then last October, he toured the GM plant in Lake Orion, Michigan, 30 miles north of Detroit, and plugged the subcompact Sonic. “You’ve got to sit in that car,” he said. “There’s a lot of room in there, even for a pretty tall guy like me.”
That’s not all. In his stump speeches, the president applauds himself for making the “unpopular” decision to “help the auto industry retool [and] prevent its collapse,” as he put it in Chicago in January. He doesn’t mention President George W. Bush, who provided the initial bailout funds. In his memoir, Decision Points, Bush said he told Obama just after he’d been elected, “I wouldn’t let the automakers fail. I won’t dump this mess on him.”
GM officials wince at Obama’s references, fearing he’s politicizing their company and keeping alive the Government Motors stigma. “I hated that name,” Whitacre, now retired, says. “I still hate it. It was very harmful to the company.”
No doubt Obama thinks he’s aiding GM. He’s not. “If you talk to these [GM] guys privately, they can’t get out from under the government fast enough,” says Daniel Howes of the Detroit News. But Obama won’t let go. He took another pro-Volt step in his 2013 budget, asking Congress to increase the tax credit for purchase of a green car to $10,000 from $7,500—an attention-grabbing provision that’s unlikely to pass. Obama also wants buyers to get the credit at the time of purchase, not later.
The administration’s 26 percent of GM stock gives it a hook into the company, though it hasn’t exploited its shares to interfere with corporate decisions. But when GM had an initial public offering in November 2010, the Obama team declined to sell all its shares, despite Whitacre’s pleas.
“There was so much interest in that IPO because we were making money,” Whitacre told me. He said he “begged” administration officials to “sell all their stock” and pay back more of the tab for the $50 billion bailout. “The government had the final say,” Whitacre says. It sought merely to give up its position as the majority (61 percent) stockholder.
Now the stock is underwater. The IPO opened at $33 a share. The price rose to $38 before falling to $20. Last week, it hovered between $25 and $26. At that price, the administration probably won’t unload its shares before the election. Selling now would expose how far short—roughly $14 billion—taxpayers are of being paid back in full. The stock price would have to double for taxpayers to achieve full reimbursement.
Until all the stock is sold, GM will continue to fall under the Troubled Asset Relief Program, since TARP funded the $50 billion bailout. This means salaries of top GM executives must be approved by the Treasury Department. Whitacre insists salaries are kept so low, at least by Fortune 500 standards, that GM can’t hire corporate talent from outside the company.
Though GM is a free-market company today, out of Obama’s grip since emerging from bankruptcy in July 2009, accusations about the bailout have lingered. Government intervention was unnecessary. GM could have been saved through the regular bankruptcy process. A private loan could have come to the rescue.
The businessmen who run GM don’t think so, nor do the executives, money people, analysts, and journalists who make up the car community. The GM board members aren’t left-wing billionaires of the George Soros school or, as best as I can tell, even mild-mannered liberals like Bill Gates. After talking to Bonderman, Whitacre, and Akerson, I’d be shocked if they voted for Obama in 2008 or intend to this November. But it would be rude to ask them.
Bonderman is cofounder of the private equity powerhouse TPG and known as a shrewd dealmaker. He says he opposes government intervention in the economy, except in “this particular, unique case.” Without it, he says, there was “not a chance” GM would have survived. “It was absolutely the right thing to do,” says Whitacre.
There’s a political factor. No president is going to let the country’s Big Three automakers—or two out of three—go out of business on his watch. In an emergency such as GM and Chrysler faced in late 2008, any president would have done what President Bush did and quickly lent billions to keep the companies afloat. Bush isn’t shy about defending his decision. “I’d do it again,” he told the National Automobile Dealers Association recently.
But why not a normal bankruptcy? The answer is it would probably have taken several years, not the two months it took Obama’s Auto Task Force to hustle GM through the process. Speed mattered. GM didn’t have the cash to exist for long in bankruptcy. It might have been forced to liquidate.
That possibility was a major worry at Ford, which wasn’t facing bankruptcy. According to a new book, American Icon, by Bryce Hoffman, Ford made secret arrangements with Toyota and Honda to keep a network of suppliers alive if GM and Chrysler collapsed.
Another fear: Customers wouldn’t buy cars from a company struggling through a lengthy bankruptcy. Opponents of the bailout dispute this, citing the current bankruptcy of American Airlines. Travelers are still booking American flights, aren’t they? Yes, but the analogy doesn’t work. Buying a car involves a warranty and, on average, keeping the car for eight years. When one buys a plane ticket, there’s no long-term relationship with the airline.
A large bridge loan would have kept GM going, but it wasn’t available in late 2008 and early 2009. Steve Rattner, who headed Obama’s Auto Task Force, has challenged anyone to show him where private capital might have been obtained. No one has.
True, Rattner is an interested party. Howes, the conservative business columnist of the Detroit News, isn’t. “I’ve challenged a number of people who’ve made that charge and asked them to give me an example of who could have provided the capital,” Howes says. “They just stand there. And these are my conservative friends.”
A loan guaranteed by the government could have been obtained, Rattner says. “But it wouldn’t have changed anything.” The government would have placed the same amount of money at risk as it did in the bailout. That was $50 billion in GM’s case. And it would have set the conditions for GM’s acceptance of the money—thus, government intervention.
The Auto Task Force, Rattner argues, had every reason to get private money. The government bailout was unpopular. “We would have been delighted had there been private capital,” he says. “There was no private capital available for anything,” much less for auto companies on the verge of going belly-up.
When asked after a speech to the Detroit Economic Club last December if he’d do anything differently, Rattner said the UAW might have been asked to give up more. Wages, pension accruals, and health care benefits of current union workers were left untouched by the task force, leading to charges of favoritism for the Obama-supporting UAW.
Rattner says “very unpleasant choices” had to be made. Bondholders suffered, many of them middle-class individuals who had invested in relatively inexpensive bonds. “I felt sorry for them,” he told me. “We could have thrown more money at them.” Others were large investment funds. The decision “was heartrending.” More important, the UAW was crucial to GM’s future. The bondholders weren’t.
The Volt is “the single most politicized automobile since the Corvair,” says car industry analyst Edward Niedermeyer of the website The Truth About Cars. The Corvair was attacked by Ralph Nader in 1965 in his book Unsafe at Any Speed. The car was later dropped by GM, Nader became a national figure, and the industry began to adopt more safety measures in autos.
Conservatives have latched onto the heavily subsidized Volt as a symbol of Obama’s meddling in the economy and misguided zeal for killing off gasoline-powered cars. Bill O’Reilly and Lou Dobbs of Fox News and Rush Limbaugh have led a chorus of Volt critics. An article in Forbes was headlined “How the Chevy Volt Is Like Obamacare.” Another in Townhall said the Volt is “the perfect car for the Occupy Wall Street crowd.”
The Volt has few public defenders. One is Media Matters, which is highly partisan, left-wing, pro-Obama, and Soros-funded. Its defense, to the extent anyone is aware of it, is likely to make the Volt even less popular. Jay Leno is more appealing as a Volt admirer. He got a Volt in December 2010. After driving 11,000 miles, he’s “never had to put gas in it yet,” he told the New York Times last year. The car switches automatically to gas once the battery power is used up, usually after 30 to 40 miles.
GM has contributed to the Volt’s troubled image. The company “fueled totally unrealistic expectations for Volt, equating it with a symbol of its rebirth even before collapsing into bailout,” says Niedermeyer. In truth, the car was never going to be GM’s savior and certainly isn’t today. It was introduced at the Detroit Auto Show in 2007 as a futuristic concept car. But it came to market in 2010 as a four-seat car that looks like the Chevy Cruze, a hot-selling compact.
This was unfortunate. The Volt sells for $41,000, more than twice the sticker price of the Cruze, which gets up to 40 miles a gallon and thus makes sense as a cheaper, fuel-efficient alternative to the Volt. Obama’s task force concluded in a 2009 report that the Volt would “likely be too expensive to be commercially successful in the short term.” GM had already decided to eliminate the Pontiac, Saturn, Hummer, and Saab from its lineup. The Volt was spared.
There’s more. Production of the Volt has been halted three times. Then came the crash tests of three Volts last November by the National Highway Traffic Safety Administration. The battery of the third Volt emitted smoke and sparks, and a week later a fire broke out in the battery of the second. The test didn’t follow GM instructions, and investigation found no safety problem. There was no recall.
The most significant fallout from the test was an eruption of criticism, much of it from conservatives, and much of it exaggerated. This, in turn, prompted a full-throated pushback from Bob Lutz, the former GM vice president, champion of the Volt, and a conservative himself. No Volt has ever caught fire “in normal use or in accidents,” he wrote in Forbes. He added, immodestly, the Volt was “conceived by me and my team well before any federal bailout of GM.”
Then he unloaded this barrage:
“What on earth is wrong with the conservative media movement that it feels it’s OK to spread false information, OK to damage the reputation of perhaps the finest piece of mechanical technology our country has produced since the space shuttle, OK to hurt an iconic American company that is roaring back to global pre-eminence, OK to hurt American employment in Hamtramck, Mich., as long as it damages the Obama administration’s reputation?”
Akerson bemoans the Volt’s having become “a political punching bag,” but GM won’t give up on the car. It needs hybrids like the Volt and all-electric cars like the Spark, due to be introduced next year. The fuel efficiency standards imposed by Obama—54.5 miles per gallon in 2025—are so onerous that it needs them to hold down its fleet average. Obama boasts the new standard will save drivers on gas. He neglects to say it will drive up the price of cars.
One more thing. A study by the Mackinac Center for Public Policy said the first 6,000 Volts sold received government subsidies ranging from $50,000 to $250,000 per car. True, but the cost of subsidies per Volt will go down as more Volts are purchased.
Akerson, 63, is not a car guy. In his eight years at the Carlyle Group, the private equity firm, his only brush with the automobile industry was his role in Carlyle’s acquisition of Hertz. His primary residence is in McLean, Virginia. He commutes weekly to Detroit. A graduate of the Naval Academy, Akerson is a decisive, blunt man who tends to rely on those who know more about cars than he does. He believes a commander is only as good as his generals. He says his father always bought GM cars, but he drove a Mercedes before joining the GM board in 2009 and taking over as CEO in September 2010. Now he has two Cadillacs in Virginia, one in Detroit.
When Carlyle Group cofounder David Rubenstein learned Akerson was considering the CEO job at GM, he asked, “Do you know how much money you’re leaving behind [at Carlyle]? . . . Does your wife know? . . . Do your children know?” In 2011, he earned $9 million at GM, with no cash bonus. His pay had to be approved by the administration’s TARP paymaster. Both Alan Mulally of Ford and Sergio Marchionne of Fiat, which owns Chrysler, earned considerably more.
Two pictures in Akerson’s 39th-floor office in the Renaissance Center in Detroit’s grim downtown reflect his vision of GM’s past and future. A framed cover of a 1986 copy of Fortune sits on a table near the door. It’s a picture of cars from five GM brands. They all look alike. Over his desk, there’s a picture of the Cadillac ELR concept car. It’s an “electric hybrid” like the Volt and would be built with a Volt powertrain. Akerson has hinted it’s set to go into production.
The ELR and Volt will have a lot of competition, and not just from Nissan’s all-electric Leaf. Green vehicles are soon to flood the auto market: the Ford C-Max plug-in, Ford Fusion plug-in, Chevy Spark EV, Toyota Prius plug-in, Volvo C30 EV, and Toyota RAV4 EV. But selling high technology cars is the least of his worries.
His biggest test is turning money-losing GM Europe into a profit center. His three predecessors at GM—Rick Wagoner, Fritz Henderson, John Smith—failed at this task. He also needs to improve sales in Latin America and keep pension benefits under control. But auto analyst Itay Michaeli of Citigroup says Akerson has begun to change GM’s corporate culture. He’s cut out the bureaucratic logjam of 30 committees and continued closing GM facilities in the United States, from 47 in 2008 to 33 this year. GM’s net income in 2011 was $7.6 billion.
At Carlyle, Akerson avoided the press. In Detroit, auto company bosses are rock stars, and a posse of reporters follows them and plays up their every word. He appears to dislike the media clamor. Some of his comments have been indiscreet. He said a $1-a-gallon increase in the gasoline tax would help the auto industry. During the flap over the battery fire, he offered to buy back the Volts of unhappy owners. More than 100—less than 1 percent—came forward.
Akerson visited Solidarity House, the UAW’s headquarters, a few weeks before he became CEO, the first GM leader to do so. He meets more often with UAW chief Bob King than his predecessors did with their union counterparts. It wasn’t Akerson’s doing, but many in the automobile community are still amazed the UAW allowed 40 percent of the workers at the Sonic plant to be paid at half the normal level—$14 an hour rather than $28. The goal is to show a small car can be produced profitably in the United States, not just in foreign countries with lower wages.
Now if GM can just get President Obama out of its hair . . .
Fred Barnes is executive editor of The Weekly Standard.