Obama’s GM Plan Looks Like a Raw Deal

The Center for Auto Safety is the nation’s premier independent, member driven, non-profit consumer advocacy organization dedicated to improving vehicle safety, quality, and fuel economy on behalf of all drivers, passengers, and pedestrians.


MAY 29, 2009

Obama’s GM Plan Looks Like a Raw Deal

Congress, not a secret task force, should decide the company’s fate.


What public purposes animate the government’s planned rescue of General Motors Corp?

Millions of people in communities across the country depend on the government getting the GM rescue right. That’s why it is startling — and mistaken — for the future of GM to rest with a small, largely unaccountable, ad hoc task force made up of a handful of Wall Street expats.

A congressional abdication of authority of historic proportions has left the executive branch with nearly complete discretion over how to handle GM and Chrysler’s restructuring. President Barack Obama has further delegated authority, giving effective control to this task force, which operates under the titular authority of a top-level interagency group headed by National Economic Council Director Larry Summers and Treasury Secretary Tim Geithner.

In the days before an avoidable June 1 bankruptcy filing, it is imperative that Congress honor its constitutional duties and demand that the GM restructuring deal be sent to it for deliberative review — before any irreversible measures, such as a voluntary bankruptcy declaration, are taken. This means delaying any precipitous decisions until after Congress returns from its Memorial Day recess.

The case for congressional involvement would be solid enough on constitutional and procedural grounds alone. But the secretive task force’s plan raises red flags and requires Congressional examination in open hearings. With the government set to take a 70% ownership stake in GM, there are too many unanswered, troubling questions to proceed with a risky bankruptcy declaration. Here are 10 pressing issues among many.

1) Has the task force conducted any kind of formal or informal cost-benefit analysis on the costs of a GM bankruptcy and excessive closures? These may include the social effects of lost jobs (including more than 100,000 dealership jobs alone), more housing foreclosures, the government expense of providing unemployment and social relief, lost tax revenues, supplier companies that will be forced to close, damaged consumer confidence in the GM brand, and impacts on GM’s industrial creditors.

2) Do GM and Chrysler really need to close as many dealerships — which do not cost manufacturers — as have been announced? Is the logic of closing dealerships to enable the remaining dealers to charge higher prices? If so, why is the government facilitating such a move?

3) Is the task force asking for too many plants to close and the elimination of too many brands?

4) Why is the task force permitting GM to increase manufacturing overseas for export back into the U.S.? Under the GM reorganization plan, the company will rely increasingly on overseas plants to make cars for sale in the U.S., with cars made in low-wage countries like Mexico rising from 15% to 23% of GM sales here. For the first time, GM plans to export cars from China to the U.S. in what is a harbinger of the company’s future business model. What is the conceivable rationale for permitting GM to increase manufacturing overseas — especially in dictatorships, for export back into the U.S. — when preserving jobs and industry is the avowed goal of this immense taxpayer bailout?

5) Why is the task force supporting GM’s efforts to devise a two-tier wage structure, whereby new auto jobs no longer provide a ticket to the middle class?

6) How will bankruptcy affect GM’s overseas operations, with special reference to China and GM’s corporate entanglements with Chinese partners? Are they and their large profits being exempted from the conditions imposed on domestic operations? Are GM’s China-based assets and profits inside or outside of the bankruptcy process?

7) Would a corporate and government-driven bankruptcy process comport with any rights of owner-shareholders to decide whether they want their company to be dissolved?

8) How will bankruptcy affect GM’s obligations to parties engaged in pending or future litigation in the courts with GM regarding serious injuries suffered because of design or product defects in vehicles sold prior to the bankruptcy? Or parties engaged in "lemon" litigation?

9) What guarantees are the task force, supposedly representing the taxpayers’ investment, obtaining to ensure that the GM of the future invests in safer and more fuel-efficient vehicles?

10) Why is the Obama administration signaling that, after reorganization, when the government owns 70% of GM, it will not exercise the control that attaches to ownership?

Many in Congress have been eager to disassociate themselves from the perceived mess of the GM reorganization, believing it too complicated.

This is a stark contrast to 1979, when Congress held extensive hearings and passed enacting legislation on the Chrysler bailout and later with the complex Conrail restructuring.

If not motivated by their constitutional duty, members of Congress might perhaps listen to political arguments to assert their rightful authority. If GM and the task force take the company into bankruptcy, more than displaced workers will be demanding that Congress answer: "Why are we bailing out the auto companies and then facilitating their moving production overseas? Why aren’t we leveraging the public investment to protect jobs and manufacturing capacity, as well as facilitate investments in environmentally appropriate technologies?"

It need not be so. The congressional leadership still has a few days to stop the reckless rush to bankruptcy court and to assert its responsibilities.

Mr. Nader is a consumer advocate. Mr. Weissman is editor of Multinational Monitor magazine.