Bankruptcy a necessary step for GM, says Obama

US PRESIDENT Barack Obama has described yesterday’s bankruptcy filing by General Motors as a necessary step towards restructuring the company as a leaner, more efficient and more competitive car manufacturer.

GM, once the world’s biggest car maker, hopes to emerge from bankruptcy protection after two or three months with fewer brands, fewer factories and lower costs.

“I’m confident that the steps I’m announcing today will mark the end of an old GM, and the beginning of a new GM; a new GM that can produce the high-quality, safe, and fuel-efficient cars of tomorrow; that can lead America towards an energy independent future; and that is once more a symbol of America’s success,” Mr Obama said.

The US government, which has already loaned GM almost $20 billion, pledged an additional $30 billion to help the company get back on its feet. The government will own 60 per cent of GM, which plans to close 14 factories in the US and agreed over the weekend to sell its European subsidiaries to Magna International, a Canadian car parts firm.

During bankruptcy, the car maker will split into two companies: a slimmed-down new GM and a so-called old GM, which will include the elements that will be wound down. The new GM assets will be transferred to an entity owned by the US and Canadian governments, the United Auto Workers’ union and the company’s unsecured creditors.

“This new GM will be built from the strongest parts of our business, including our best brands and products,” the company’s chief executive Fritz Henderson said.

Surrounded by his economic team at the White House yesterday, Mr Obama said he understood the anxiety many Americans felt as their government made such a huge investment in the car maker.

“Instead of taking so much stock in GM, we could have simply offered the company more loans. But for years, GM has been buried under an unsustainable mountain of debt. And piling an irresponsibly large debt on top of the new GM would mean simply repeating the mistakes of the past. So we are acting as reluctant shareholders – because that is the only way to help GM succeed,” he said.

“What we are not doing – what I have no interest in doing – is running GM. GM will be run by a private board of directors and management team with a track record in American manufacturing that reflects a commitment to innovation and quality. They – and not the government – will call the shots and make the decisions about how to turn this company around.”

GM’s bankruptcy filing came the same day a bankruptcy judge approved a deal for Chrysler, which is also now under effective government control, to share technology and brands with Fiat.

Ford is now alone among the big three US car manufacturers is operating without government help.

Republicans in Congress condemned the latest move as an unacceptable intrusion of the state into the free market.

“The only thing it makes clear is that the government is firmly in the business of running companies using taxpayer dollars,” said House minority leader John Boehner.

“Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability? It’s time for the administration to fully explain what the exit strategy is to get the US government out of the boardroom once and for all.”