June 2009

Under the GM deal reached with the Obama Administration, the US Government will own 60% of New GM — that is, the “leaner and meaner” GM (of course, only time will tell if that becomes the case).  The problem for the Obama Administration is that the US, between Chrysler and GM, has now ventured into ownership of private companies.  There are numerous interesting questions to ponder:  what will the US do if, in the most unlikely event, another bidder bids on the assets of the GM (I realize this is a virtual improbability)?  In such a case, would the Government enter into competitive bidding?  Would the answer to this question change if such a fantasy bidder is a foreign or sovereign entity compared to a private entity?  Assume the US is the successful bidder, which it will be, what happens if the US sells its 60% share shortly after New GM is formed — the US will likely take a substantial hit leaving the taxpayers out of the money (which will create a difficult political situation for the Obama Administration)?  On the other hand, if the Government does not sell its majority interest in New GM, will it start telling New GM (and Chrysler) what type of cars to make (no doubt they will be told to make small, “green” cars)?  Will it provide tax credits to those buying New GM (and Chrysler) cars?  Will it provide subsidies like China does for Chinese companies so that New GM and Chrysler appear profitable?  If the US Government attempts to alter the market either through subsidies, company specific policy creation/enforcement, or company specific tax policy, it will alter the fundamentals of American economics and capitalism by creating a form of American socialism (a very scary thought!).  The questions go on and on…  Click here to read an interesting NY Times article addressing some of these issues.  One thing is for sure:  the answers to these questions will truly reveal Obamanomics.


GM filed for Chapter 11 bankruptcy protection today in the United States Banrkuptcy Court for the Southern District of New York at 09-50026.  A copy of the petition is here, and a copy of the GM press release describing the bankruptcy proceedings are here.  To read a good discussion about the bankruptcy proceedings, click here.