Will Profit or Politics Prevail With U.S. Owning GM?

General Motors essentially proposed Monday to nationalize itself. In seeking additional funds from the government, the automaker's proposal would leave the U.S. Treasury Department as the majority stockholder in the company.

If the government accepts the plan, the questions become: Does it have an exit strategy? Can it balance the colliding interests of taxpayers, the UAW and rival auto firms?

Under a revised restructuring plan submitted by GM, the government would hold at least 50 percent of GM's equity, or stock. A retiree health care trust fund for UAW workers would own 39 percent, and current bondholders would hold 10 percent of the stock. Current shareholders would control the remaining 1 percent.

If the federal government becomes the primary owner of GM, it will still be the chief regulator of the company, as it is of all auto firms.

In GM's case, the two roles could conflict.

GM's return to profitability depends on building vehicles that consumers want to buy, and building them at a lower cost.

That's why the company announced Monday a new and deeper round of cost-cutting, including laying off more workers and shuttering more plants. It will get rid of the Pontiac brand, and perhaps the Saturn line, and is still trying to peddle Hummer.

But various branches of the government have additional objectives. The Obama administration and many in Congress want Detroit to build small, fuel-efficient vehicles ahead of market demand, load those vehicles with expensive technology and hold them to much stricter emissions standards.

Such demands would add considerable costs to making cars and trucks, and place an additional handicap on GM's recovery.

The same is true of other automakers, but the government has not been asked to take an ownership position in them.

And if GM doesn't return to profitability, taxpayers would be stuck with a lot of bad debt. If Washington signs on to this plan, it couldn't be aloof to GM's bottom line.

Something not addressed Monday is how long this curious ownership arrangement could last. Treasury, in assessing GM's proposal, ought to establish a clear exit strategy.

There is no precedent for the government owning a private company for the long term. GM's management would have to do some very tricky navigating with the U.S. Treasury as its principal stockholder, as would the Obama administration's auto team.

There are a lot of competing interests. The taxpayers would want GM to be more cost efficient; the UAW is interested in preserving jobs. Other auto firms could be suspicious of government regulations if the government owns controlling interest in a particular firm.

Of course, GM's management invited this possibility with this proposal. But if it becomes a reality, the goal should be to get the government out of General Motors as quickly as possible. That will require setting clear benchmarks for selling the taxpayer shares in the automaker. If GM does return to profitability by 2010, as it hopes, then it should begin paying off its obligations to the government and buying back its independence.

That's the best outcome for GM's plan to have the government assume so large a role in its affairs.

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