Most journalists, federal officials, and General Motors (GM) executives are celebrating the U.S. Treasury’s recent announcement that the federal government is beginning to sell its share in the bailed-out auto giant. They claim that the government’s sell-off is good for GM and for the government, and it is the “American” thing to do. But the successful GM bailout and the history of private/public partnerships in early American history suggest that they are wrong on all three counts. The Treasury should hold onto GM stock as long as it can.
The federal bailout of GM occurred in spring 2009. What was then the world’s largest auto company had been hemorrhaging money for years, losing an astonishing $69.6 billion in 2007-2008. By early 2009, the company faced bankruptcy, with no private investors willing or able to pour money into it. Counting GM’s 91,000 employees, the several hundred thousand employees of GM contractors and dealerships across the country, and all the economic activity that they generated, estimates suggested that as many as a million Americans would have lost their jobs had GM gone under. And this was in an economy that was already floundering. In stepped the Obama Administration, loaning GM $5.5 billion and investing another $49.5 in the newly reorganized corporation.
In a statement about the government’s decision to sell, Treasury official Timothy Massad declared, “The government should not be in the business of owning stakes in private companies for an indefinite period of time.” But the federal government’s owning a stake in GM is as American as apple pie and Chevrolet.
Our nation’s founding generation insisted that the federal government own a significant share of the largest corporations at the time, national banks. They did so for two reasons. First, it was a way to ensure that some of the profits would support the whole community. Second, it secured government-appointed representatives on corporate boards in order to provide public oversight of powerful institutions that made decisions affecting a broad swath of the economy. More recently, the federal government has held joint ownership with the private stockholders of Fannie Mae, a mortgage provider, and Amtrak, which operates passenger trains. They have struggled recently — but, then again, so did GM, Citigroup, and many other companies without federal ownership.
Despite howls of protests from bankers about government involvement in banks, early national banking corporations turned out to be hugely profitable, and those that the state governments kept the closest eye on and had large holdings in were the least likely to go under during economic crises. Similarly, the Obama Administration’s decision to invest in GM has been a major success. Finally forced to face economic reality, GM shed the money-losing brands Saab and Saturn, consolidated operations, streamlined its supply chain, and began investing more in energy-efficient cars that could be sold throughout the world rather than gas-guzzlers popular only in the United States during boom economies. In 2010 GM posted a profit, and in 2011, it reported $7.6 billion in profits, its best year ever.
GM Chief Executive Dan Akerson released a statement, saying that the sale “removes the perception of government ownership of GM among customers,” which would help sales for what some now call “Government Motors.” That’s a stretch, given that GM sold 6.97 million cars worldwide last year. Most of its growth is in China, where, just as in the United States, consumers care more about quality, features, and price than about the parent company’s ownership structure.
Rather, what seems to be the real reason GM executives are so eager to reduce partial federal ownership is that the automaker will no longer be under the strictures that were conditions of the deal, most notably limits on executive pay. Similarly, bank insiders in the early republic chafed under governmental attempts to limit their ability to reward themselves through sweetheart loans. GM executives have quietly claimed that pay limits are hurting their ability to recruit and retain top talent. But in the years before the bailout, highly-paid GM executives, most notably handsomely rewarded former CEO Rick Wagoner, ran the company into the ground. (GM lost $85 billion during his leadership.) With ceilings on executive pay, the company is enjoying its best profits in its century-long history. Which makes you wonder, is this about GM or about GM executives?
Many observers believe that GM’s stock is currently undervalued, and that the government would get more on the taxpayers’ investment by holding out longer. Steven Rattner, the financier who worked out the GM restructuring for the U.S. Treasury Department, has called the auto bailout a success, but says that government holding a long-term ownership interest in a private company is “un-American.”
He’s exactly half right.
Andrew M. Schocket is author of “Founding Corporate Power in Early National Philadelphia” and director of American Culture Studies at Bowling Green State University.