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GM to Become “Government Motors” in All But Name

Wed, 06/03/2009 - 1:09pm
by Jason Lomberg, Technical Editor

GM to Become “Government Motors” in all But Name

Jason_Pic130by Jason Lomberg, Technical Editor

Vito Corleone could have foreseen GM’s collapse when he uttered, “Someday I may call on you for a favor.” GM has done business with the mafia, and now it’s time to pay the piper. The ailing automaker, which filed for Chapter 11 bankruptcy on Monday, will be 60% owned by a familiar “protection racket”: the government.

Thus far, General Motors has received $15.4 billion in government aid, and under the new, restructured company, this translates to 60% federal ownership. Where’s the light at the end of the tunnel? GM, with the government’s help, has dug itself so deep a hole that it’s hard to imagine a prompt recovery. GM projects emerging as a competitive, independent company 60-90 days after June 1st, but this seems like wishful thinking. GM’s plan includes shedding Pontiac by the end of 2010, and focusing on four core brands within the US: Chevrolet, Cadillac, Buick, and GMC. The plan also calls for the closure of up to 2,000 dealerships.

To make matters worse, the government has implemented a national MPG standard: 35.5 mile by 2016. As a result, consumers will pay $1,300 more per vehicle. Could this come at a worse time? Or is this irrelevant to administration officials? Its one thing for the government to enact costly regulation when the economy is good. But in the midst of bankruptcy proceedings, it seems counterproductive at best.

The government already stepped in to “fire” GM CEO Rick Wagoner—and that was before acquiring a 60% stake in the company. With majority ownership, what changes will the government force on GM? Anyone remember the Eastern bloc Trabant? President Obama once declared, “The United States government has no interest in running GM.” Yet this is exactly how events have shaped up. When you get in the government's pocket, there's no getting out.

Do you agree? Disagree? Think I need my head adjusted? Leave a comment below!

Note: The preceding represents the view of the editor and not neccesarily ECN.

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