Maybe the most disturbing news in “American Turnaround,” Ed Whitacre’s new book that describes his stint as head of General Motors, is how naïve he was about what it means to run a company that’s been bailed out by the federal government, and is now regulated by the anti-business types who populate the Obama administration.
As Whitacre takes the job back in 2009, he thinks that the automaker’s government masters are rational people looking to help the company survive and thrive. Along the way, he finds out that they’re not.
In fact, their true goal wasn’t to maximize profits to ensure GM survives for the long term, but to keep control of the company as long as possible (the feds still hold a 26 percent stake today) to both keep its union allies fat and happy and to please its green buddies by forcing GM to produce hybrid vehicles that the vast majority of Americans can’t afford now, and never will.
You have to read between the lines to learn this, but it’s pretty clear to anyone who knows what was going on.
What Whitacre does explain is how his advice to the administration that it should accept a deal in which GM would get the government completely out of its hair by repaying all the bailout money was shot down — with little rational explanation.
In the book, he blames GM’s investment bankers, who said they were skittish because of market conditions at the time — afraid that an IPO might not raise enough to repay the government’s entire $43 billion investment.
But those bankers weren’t picked by the company, but in large part by the Obama Treasury Department. And it’s clear they didn’t view Whitacre as their client — these were some of the same fat-cat bankers who themselves got a federal bailout during the 2008 financial crisis, who’d say anything to appease their ultimate bosses in Washington.
And, as Whitacre notes, the partial IPO that the bankers allowed went well. On that day, GM didn’t just get a few additional orders for its $20.1 billion offering (then the largest IPO ever) but orders worth $86 billion — enough, he notes, that GM “could have easily repaid the government the entire $43 billion it owed, and given taxpayers a nice profit for their time and trouble on top of that.”
A longtime former telecom executive, including a stint as CEO of AT&T, Whitacre knows something about Wall Street deal-making — so it’s no surprise he was right.
Again, he doesn’t cast aspersions on the administration. He writes of meeting President Obama, who urged him to stay on as CEO (he retired at the end of 2010), saying the president had “no airs at all. I liked him right way.”
But he obviously didn’t like working for him. While he never complains outright about the money-losing hybrids, Whitacre says, “Government was getting a little too comfortable with having a grip on GM.” Answering to the feds made it hard to pay and attract talented managers, which had “negative impact on our people, and a negative impact on our psyche as a company,” now known derisively as “Government Motors.”
Whitacre says he supported the controversial bailout of GM, which is odd from a guy who spent his life in the free marketplace.
Yes, the alternative would’ve been bankruptcy and an uncertain future — but plenty of companies survive such reorganization in better shape. After all, bankruptcy lets you deal more effectively with issues like overly generous union pensions, which was at the heart of GM’s financial woes. And it would’ve avoided interference from political types who couldn’t care less about how many real (money-making) cars as opposed to (money-losing) hybrids are being sold.
In the end, the lesson to take from Whitacre’s muddled message about GM and its partnership with government (particularly for US corporate leaders operating in the new world of bailouts and an administration eager to control their activities for political purposes): Be wary of handouts.
The label “Government Motors” might come with free money to avoid natural market forces, but it also means you’re never really going to be independent, and that might be a fate worse than bankruptcy court.
Charles Gasparino is a Fox Business Network senior correspondent.