In 2008, the Federal Reserve hatched a plan to save GM. With the government’s remaining stock set to be sold off in the next few months, will the car company be able to shed its image as “Government Motors?”
It Happened Before
The last major automaker bailout happened back in 1980. Chrysler was in much the same place GM found themselves a few years ago: A mountain of debt, a stale product lineup and numerous quality issues meant that the company was going to go under.
The resulting $1.5 billion government loan gave the company enough time to restructure. Former Ford executive Lee Iacocca became head of the company and a crash project was launched to rebuild the company’s lineup around the new front wheel drive K-platform. By 1983, Chrysler had repaid the loan and interest, earning the government $350 million and shedding any hint that the deal was corporate welfare.
What Makes the GM Deal Different?
It had been suggested during negotiations of the Chrysler deal that the government should take on shares to give taxpayers equity in their investment. That’s exactly what happened this time. A “new” GM was created with ownership split between the U.S. government, Canadian government and United Auto Workers.
Resurrecting a Company
Dozens of books have been written about GM’s management failures over the years, so it’s no surprise that the new owners forced a complete restructuring. The result was a simplified structure consisting of Chevrolet and Buick-GMC-Cadillac divisions, ending the dated “fiefdom” structure of competing internal brands.
It looks like the restructuring plan worked. Cadillac and Buick have moved are now serious competitors in the luxury market, the company is a leader in the exploding Chinese market, and the entire lineup is now near the top of J.D. Power’s initial quality surveys.
Corporate Welfare or Job-Saving Success?
The government has sold all but 7 percent of the initial 61 percent stake with plans to sell the remaining stock by March of next year. In the end, taxpayers will lose $10 billion of the $49.5 billion originally invested.
Depending on how you look at it, this makes the deal a major failure or a major success. Without GM, analysts predicted a collapse of America’s auto suppliers and in turn the entire domestic industry, resulting in lost jobs and millions of lost tax revenue. In the end, those against government spending will point at the losses from the stock sale, while those for it will point to the successful lineup and saved jobs that easily cover the direct losses.
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