Popping the Corks for GM

Stephen Spruiell thows a bit of cold water on GM’s much ballyhooed IPO:

Regarding the triumphalism attending GM’s IPO, let this post serve as a friendly reminder that GM still owes the U.S. government $43 billion; that its financing arm still owes $14.6 billion; and that its sick friend Chrysler still owes $8.2 billion.

….Let’s also keep in mind that many conservatives did not object to the idea of government-backed debtor-in-possession financing for GM and Chrysler at the height of the credit crisis, arguing that bankruptcy was unavoidable but that it might be necessary for the government to play a limited role in keeping the lights on at GM. The counterargument at the time, which one encountered constantly when arguing with bailout proponents, was that GM could not survive a bankruptcy — even a government-financed one — because the damage to its brand would be too great. Like many of the scare stories the automakers were telling at the time, this turned out to be false. It eventually became necessary for both GM and Chrysler to declare bankruptcy, and this did not prove fatal to either company. However, instead of providing simple debtor-in-possession financing, the TARP-financed bailout of the auto companies gave the Obama administration more control over the process, which it used to allow its union supporters to jump the line ahead of senior creditors. That’s exactly the kind of thing conservatives feared, and why we called for the government to have a much more circumscribed role if it was to have any role at all.

Look, no one is rooting for GM to fail, or for thousands of autoworkers to be laid off, or for the taxpayers to lose their entire stake in the company. But it is just ridiculous to start popping champagne corks left and right over the fact that an industrial problem child like GM managed to put its pants on today without falling on its face.

I’m surprisingly sympathetic to much of this. I remember my main reaction to the GM/Chrysler question at the time being, “I’m sure glad I’m not president of the United States right now.” I really detested the whole idea of bailing out GM, but at the same time it was hard to convince myself that if I were actually in charge I’d be willing to risk the loss of another million jobs during the depths of the biggest economic turndown since the Great Depression.

And now? Like Spruiell, I’m far from convinced that GM is truly out of the woods, but I’m not as downbeat as he is over how this all played out. He’s right about GM eventually declaring bankruptcy and coming through it OK, but the argument against bankruptcy, as I recall it, was mostly an argument against an uncontrolled bankruptcy. The main virtue of the eventual government involvement was not just that the feds provided some money, but that they were able to create a credible restructuring plan and then run it through the courts as a quick prepackaged bankruptcy. It’s impossible to say for sure how much difference that made, but given that the feds were going to be on the hook for a lot of money regardless, it’s hard to argue that it was worth taking any more chances than we had to.

And what was the downside? In the end the Obama administration didn’t exercise all that much control over the company. The union deal has always stuck in conservative craws, but it was pretty defensible on purely practical grounds, and in any case the UAW almost certainly didn’t come out of the process much better than they would have in a standard bankruptcy. And in the post-bankruptcy stage, the administration has taken an almost obsessive hands-off attitude toward GM’s operations, especially considering that they were a 61% shareholder.

The precedent the GM bailout set wasn’t great. But in the end, I think even conservatives ought to acknowledge that it was handled quickly and competently, and that afterward the Obama administration showed very clearly that it had absolutely no interest in using the government’s stake to exercise control over the company. I wouldn’t get too triumphal about GM’s IPO either, but I guess I also wouldn’t be too churlish about acknowledging that, all things considered, it turned out pretty well.


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