Obama reassures on US role in GM - Washington set to acquire 60% stake

Obama reassures on US role in GM - Washington set to acquire 60% stake
By Bernard Simon in Toronto, John Reed in London, Tom Braithwaite in Washington, and Julie MacIntosh and Alan Rappeport in New York
Copyright The Financial Times Limited 2009
Published: June 1 2009 13:04 | Last updated: June 1 2009 18:08
http://www.ft.com/cms/s/0/431feb02-4ea4-11de-8c10-00144feabdc0.html


President Barack Obama sought on Monday to quell unease over Washington’s widening role in the auto industry by promising that his administration would refrain from exercising its pending majority stakes in General Motors and Chrysler in all but the most critical decisions.

Mr Obama’s pledge came as GM reassured customers, suppliers and others that it would continue business as normal after filing for Chapter 11 bankruptcy protection.

Washington is set to acquire a 60 per cent stake in GM and 55 per cent of Chrysler, its smaller rival which is set to emerge from its court-supervised restructuring within the next day or two in an alliance with Italy’s Fiat. The Canadian government will own 12.5 per cent of GM and a small piece of Chrysler.

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Mr Obama stressed that the US government was a “reluctant” shareholder in GM. “The federal government will refrain from exercising its rights as a shareholder in all but the most fundamental corporate decisions,” he said.

"When a difficult decision has to be made on matters like where to open a new plant or what type of new car to make, the new GM, not the United States government, will make that decision," he added.

Mr Obama also celebrated the restructuring of Chrysler, noting its 31-day stay in Chapter 11 was “an outcome dramatically better than what appeared likely when this process began”.

Shortly before Mr Obama spoke, Tom Donohue, US Chamber of Commerce president, expressed misgivings about the potential for government and union influence at GM and Chrysler “in ways that could jeopardise [their] chances for survival, put politics and special interests above sound business strategy, and disrupt our nation’s trading relationships.”

The administration spelt out a number of principles for managing its stakes in private-sector businesses. They include a commitment that no government official will serve as a director or employee of a company in which Washington has an equity stake.

GM said that it expected to emerge from Chapter 11 sometime in August as a much leaner company. Following Chrysler’s example, it will split into “old” and “new” companies under section 363 of the US bankruptcy code.

The US and Canadian government have agreed to underwrite warranties on GM vehicles while the company is in bankruptcy protection. Fritz Henderson, GM’s chief executive, made a plea to customers who had been disappointed by GM vehicles in the past: “Give us another chance.”

He also said that GM’s bankruptcy filing today had “been exceptionally difficult both personally and professionally,” although he also described its as “a new beginning for GM.”

GM’s boss emphasised the importance of speed as GM goes through bankruptcy and a 363 sale. “There’s always a risk, but we are confident we will move fast,” he said.

GM on Monday named Al Koch, a turnaround expert with the consultancy AlixPartners, as its Chief Restructuring Officer, charged with overseeing the winding down of the “old GM.”

The carmaker also said that it had sufficient funding to ensure an uninterrupted supply of goods and services. It plans to retain the vast majority of its 4,000 suppliers, according to a person familiar with the situation.

Moody’s said that it did not expect that that GM’s filing would lead to “material” ratings downgrades for suppliers, dealers or car rental operators. Parts makers such as Robert Bosch, Lear and Magna International are among GM’s biggest creditors.

Delphi, GM’s biggest supplier, said on Monday that it had reached a deal to emerge from almost four years in Chapter 11 protection under the control of Platinum Equity, a California-based turnaround group.

GM’s bankruptcy filing applies only to its US operations. GM Europe said on Monday that its dealers, warranty and customer support operations were unaffected.

Speaking on Monday, Mr Henderson hinted at the precarious financial position Opel/ Vauxhall was in late last week, as GM and Germany’s government scrambled to line up E1.5bn of emerrgency bridge financing to finance a spinoff of GM’s European arm.

“It was very important for us to get clarity around Opel prior to today,” he said. “Had we not done that, we weren’t entirely sure what would happen.”

The new GM aims to break even at US sales of 10m cars and light trucks a year, compared with 16m now. Sales so far this year have run at about 9.5m units.

The company that emerges from Chapter 11 will have only about $17bn of debt on its balance sheet, down from $80bn now, excluding $33bn in loans from the US and Canadian governments to finance its stay in bankruptcy.

Asked how long he thought the government would be a shareholder in GM, Mr Henderson said it was “a question of years, not months.”