BY DAVID E. SANGER and BILL VLASIC
Published: May 2, 2009
WASHINGTON — Fresh from pushing Chrysler into bankruptcy, President Obama and his economic team are hoping that the hard line they took last week gives them leverage to force huge changes in General Motors, a far larger and more complex company.
Officials say that, difficult as Mr. Obama’s decision was on Wednesday night to take all the risks of a Chrysler bankruptcy, the politics of reshaping G.M. will be far harder. Already a shadow of the company that once dominated the American landscape, G.M. will be forced to eliminate tens of thousands of additional jobs and close factories and dealerships nationwide.
In Chrysler’s case, the tough job-cutting decisions had already been made and the government is taking only a small stake. An alliance with Fiat envisions selling the company’s cars in new markets around the world and ultimately adding cars that use Fiat’s fuel-efficient technology.
But in G.M.’s case, Mr. Obama will be forcing deeper cuts and becoming the controlling shareholder. He will also be overseeing the radical downsizing of G.M.’s work force as he is trying to reverse rising unemployment.
“G.M. is very different than Chrysler,” Rahm Emanuel, Mr. Obama’s chief of staff, said Friday. “But I suppose the one lesson for G.M., and all the other players, is that this is a moment when a Democratic president said, ‘I am really willing to let a company dissolve, and there’s not going to be an open checkbook.’ There’s got to be real viability.”
No one thinks that Mr. Obama is going to allow G.M. to be broken up, its assets sold or abandoned.
But if the Chrysler legal process unfolds as the White House hopes it will in coming weeks, the bankruptcy option may look increasingly attractive for G.M. as well, according to officials on Mr. Obama’s automotive task force. Bankruptcy may also be the only way to force the kind of paring down that Chrysler, with a third of G.M.’s workers and half the number of plants, did not have to endure.
“The threat of bankruptcy is very important in the negotiations with the bondholders and the dealers and others,” said David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. “Without a clear and present danger to them, they won’t make a reasonable deal.”
G.M.’s latest restructuring plan — which the White House has yet to approve — calls for trimming 47,000 jobs worldwide, closing more than a dozen plants in the United States, eliminating four brands and shuttering 2,600 dealerships.
Even that may not be enough. As the leaders of Mr. Obama’s task force faced down a group of recalcitrant Chrysler creditors on Wednesday, a team of more junior officials was in Detroit assessing whether G.M. was cutting deeply enough to turn a profit.
“Our marching orders were to do both Chrysler and G.M. the way we would do a strictly commercial deal,” said a senior official on the task force, who would not speak on the record because the negotiations with G.M. were still in progress. “We’re not going to sit there and tell G.M. how many jobs to cut, or what models to eliminate. But we are going to look at the financials, the balance sheet, and see if the plan they come up with passes that test.”
Because Chrysler was already the most marginal of what were once called the Big Three — this will be its third corporate reincarnation in a decade — Mr. Obama could afford to take a hard line. But when dealing with a company as storied, as politically sensitive and as large as G.M., the administration will have a far harder time separating the economic decisions from the political challenges.
In Chrysler’s case, it was a handful of the company’s 46 lenders that presented the biggest roadblock. Mr. Obama could portray them as obstructionists who put their demands for repayment ahead of preserving the company and the jobs of its workers.
But General Motors’ creditors number in the tens of thousands and include pension funds that bought the company’s unsecured bonds. G.M. bondholders have no claim on the company’s plants or inventory, but they will probably attract more sympathy than Chrysler’s Wall Street lenders did.
The Treasury Department will pay $2 billion to Chrysler’s bondholders, but it is offering only stock in a new G.M. to its creditors — 225 shares for each $1,000 in debt held, making them minority owners who are invested in the company’s success. “That’s the bargaining chip,” said Mr. Cole of the Center for Automotive Research.
Ahead of the June 1 deadline, Mr. Obama holds all the leverage: The bondholders’ only alternative would be to get in a long line of creditors who will be paid relatively little, because G.M. bonds are trading at about 10 cents on the dollar. It “may not be such a bad deal in the end,” Mr. Cole said.
G.M.’s case also differs from Chrysler’s in another crucial sense: there is no Fiat in the wings, no big private investor ready to bring new money and new technology. Instead, Mr. Obama will effectively use taxpayers as that investor, with the federal government getting slightly more than a 55 percent stake in the company in exchange for forgiving $10 billion in the automaker’s outstanding federal loans. The United Automobile Workers’ retiree trust would have just under 40 percent of the stock, according to the G.M. plan.
The huge federal stake in G.M. — even if temporary — means that for all of Mr. Obama’s protests that he is a reluctant investor, eager to fix the company and sell the controlling interest ( hoping for a hefty profit), he will be judged by whether his plan actually works.
Mr. Obama has said repeatedly that he is not an automotive engineer and has no desire to pick models, engines, factories or corporate governance structures. But while he may not be choosing automotive designs, he has already started dictating the company’s direction.
The president has made it clear that G.M. must produce small, fuel-efficient, low-carbon-emitting cars — steps G.M. has taken only haltingly. Its vehicles range from the Cadillac Escalade, which gets 12 miles to the gallon in the city, to the experimental Chevy Volt, an electric car that the company says will go 40 miles gas-free.
Members of Mr. Obama’s auto task force say that even after the government owns a majority of the company, it will have no role in management. That, they say, will be farmed out to professionals, the work supervised by government-appointed members of a new G.M. board.
But at some point, some task force members acknowledge, the drive for profitability is likely to collide with Mr. Obama’s fuel-efficiency and low-emission goals. G.M. produced heavy gas-guzzlers because they were among the most profitable in its line and, for a long time, the most popular. It is unclear whether smaller cars can be as profitable — or, for a few years, competitive with offerings from Toyota and Honda and soon a new raft of inexpensive cars under development in China.
A version of this article appeared in print on May 3, 2009, on page A1 of the New York edition.
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