If the government takes a majority stake in General Motors, will it end up taking the wheel, too?
Under a restructuring plan put forth this week by GM, the ailing automaker would give majority ownership to the federal government to stave off bankruptcy. That handoff would amount to an extraordinary partial nationalization of the maker of Buicks, Cadillacs and Chevys that has been an independent company since 1908.
The Obama administration has said it isn't interested in running an auto company, but with that big of a stake, some analysts say the government would probably be tempted to push its own policies on such issues as alternative fuel vehicles and unions. And that could affect the types of cars that roll off GM's assembly lines.
"The fear here is that a company owned by the government would move toward the do-good results, not the bottom line," said Gerald Meyers, a University of Michigan business professor and former CEO of American Motors Corp.
GM's proposal would give the government more than 50 percent of the automaker's stock in exchange for forgiving $10 billion in government loans. The United Auto Workers union would end up with a 39 percent stake.
The plan is far from a sure thing. Holders of GM's $27 billion in unsecured debt have dismissed it as unfair because they would lose most of their investment. And the White House repeated this week that it doesn't want to own GM or any other auto company.
But through its broad efforts to rescue the auto industry, the White House is already deeply involved in the operations of GM and Chrysler. It has sunk nearly $25 billion into the two companies and their financial arms, and is ready to give them even more if their restructuring plans are deemed workable. The Obama administration has already flexed its muscle by forcing out Rick Wagoner as GM's CEO.
GM said Monday that it would still retain day-to-day control of the company. But at the direction of the Treasury Department, GM will replace several members of its board of directors at its annual meeting in August. In most corporations, the board sets long-term policies and goals. If the handover plan goes through, at least one of those seats will probably be held by a government representative who would look out for the taxpayers' interests.
"The U.S. government as a major shareholder would probably ensure that the board is doing their role," GM chief financial officer Ray Young said in an interview this week.
Exactly what interests the government would look out for remains to be seen.
Some analysts said that with government ownership of GM, the company could be used to press issues like building more fuel-efficient vehicles and reducing greenhouse gas emissions.
GM, which spent recent years selling SUVs and other gas-guzzlers, is already making a push into hybrid and electric vehicle technology and is spinning off the behemoth Hummer. But its best-selling vehicle is still the Chevy Silverado, a full-size pickup truck.
In another possible conflict of interest, the White House could find itself in the odd position of being a partner with the UAW while simultaneously sitting on the board as it negotiates contracts with the union.
"This almost by definition injects politics into the reorganization," said James Gattuso, a scholar at the Washington-based Heritage Foundation, a conservative think tank.
Responsibility to company, shareholders
However, Michael Ettlinger, vice president for economic policy at the Washington-based Center for American Progress, a liberal policy group, said that while the government would have an interest in protecting its investment in GM, it probably wouldn't try to dictate how the company does business or what types of vehicles it makes.
As a member of GM's board, the government would have a responsibility to the company and its shareholders to make sound business decisions, not those based on policy, Ettlinger said.
"The administration's strategy to deal with our energy challenges is not to take over automobile companies and make them do things. That is a losing strategy," he said.
Meyers said the British auto industry, which went through a period of nationalization during the 1970s, holds some clues to government ownership. In that case, he said, pressure groups like unions held powerful sway through their allies in the government.
"It's a populism kind of management," he said.
As for how long Washington would stay in the auto business, Ettlinger said the government might hold a stake in GM for several years, but added: "I don't think that long-term the federal government is interested in running companies."