You own an auto company. What do you do now?
The Obama administration — and by default, taxpayers — must answer that question now that the federal government is about to take big stakes in two of the nation’s storied industrial companies and their joint financing arm.
Based on the latest bankruptcy and bailout plans, the government will hold 72.5 percent of General Motors Corp., 8 percent of Chrysler Corp. and 35 percent or more of GMAC Financial Services, the car loan business.
Ideas for what to do with those shares are colored by both politics and investment philosophy, and they’re sure to be debated.
Some economists and financiers believe President Barack Obama should dump the stock almost immediately, to whatever buyer the government can find.
Others say the administration should find a partner, maybe a savvy investor such as Warren Buffett or an equity firm such as Oaktree Capital, to operate the businesses for a generous share of any profits on the condition that the government gets its money first.
And some believe Obama should just stick the shares deep into a desk drawer and let the next president worry about an exit strategy.
GM and Chrysler will either fail again or become corporate home runs.
Only time will tell.
The administration says significant government involvement in GM ends with its efforts to reconstitute the company’s board of directors, which would happen as part of an expected bankruptcy filing by Monday.
White House press secretary Robert Gibbs reiterated Friday that Obama did not want to run auto companies, saying the president has enough to do without having to “decide when to slash sticker prices.”
That’s the right approach, said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. “Our government doesn’t have a clue about what manufacturing is or how to manage it,” Cole said.
The administration followed the same hands-off investment strategy with Chrysler’s board, which recently announced that Robert Kidder, a former chairman and chief executive of Borden Chemical and Duracell International, would take over as chairman after the merger with Fiat.
Over the past decade, Kidder has given political contributions exclusively to Republicans, according to the nonpartisan Center for Responsive Politics. Administration officials say he was chosen for his business credentials, not political leanings.
If the Obama administration resists any inclination to meddle in the operations of these companies, taxpayers have a chance to recoup a substantial amount of money they poured into the auto industry, Cole said.
Plant closings, combined with population growth and the rates at which older, gas-guzzling vehicles are scrapped, are quickly slashing the supply of autos to a level where the industry can make money at a sales rate of about 13 million vehicles annually. That’s well below the 16 to 17 million sold throughout much of the past decade.
“We are at the start of the transition from a buyer’s market to a seller’s market,” Cole said.
There’s precedent for the government making money in the auto industry, said former Michigan Gov. James Blanchard, who helped negotiate legislation that provided federal guarantees for up to $1.5 billion in loans for Chrysler in the 1980s.
The government should hold the shares for now, then gradually divest so as not to undermine efforts of other equity holders to sell their shares, he said.
If the government leaves the businesses in the hands of competent managers, the market will sort itself out, said Jonathan Rosenthal, a partner at Saybrook Capital, a private equity firm that invests in distressed companies.
Daniel Mitchell, an economist with the conservative Cato Institute in Washington, said the Obama administration should divest quickly, even if that means abandoning any hope of cashing in on potential share appreciation.
