Meet the new, government-owned GM

Bankruptcy will force lots of changes on the automaker, putting bureaucrats in the driver's seat.

By Alex Taylor III, senior editor

NEW YORK (Fortune) -- With General Motors having filed for bankruptcy, the question arises: What will the bankrupt company look like and how will it be different?

The answer to the second part is "a lot." The answer to the first is nobody knows for sure, but it may not be pretty.

At the outset, let's establish one fact: Assuming an entity called "General Motors" does emerge from bankruptcy, it will be a different company than the one that went in. Only the good bits will come out: Chevy, Cadillac, Buick, and GMC and the plants needed to make the parts and assemble the cars and trucks.

The bad bits -- Pontiac, Saturn, Hummer, Saab, Opel and other legacy operations -- will be left behind in another company. New GM could emerge from bankruptcy in 60 days to 90 days; old GM could be stuck there for several years.

New GM could just as well be called "Government Motors," because the U.S. is going to own 60% of it, with the Canadian government owning another 12%. That may not be a good thing. Remember East Germany's Trabant and other vehicles built by the government-owned companies in the old Soviet Union?

Although the bureaucrats disclaim any interest in micromanaging the automaker, it isn't hard to imagine them nudging and guiding decisions in directions they would like them to go. V-8 engines? Inefficient. Leather seating? Bad for the environment. Multiple options and trim levels? Wasteful. We could all wind up driving some variation of a minivan.

What the UAW will do: The United Auto Workers will own 17.5% of new GM (and get all-but-worthless warrants that could theoretically boost its stake to 20%). That's already a bad thing. UAW president Ron Gettelfinger noted last week that the union got GM to move production for 160,000 units of its of a small Chevrolet from China to the U.S.

"It should be built here if it's going to be sold here," said Gettelfinger. The UAW president is a smart guy but it sounds like he hasn't been paying attention. Being unable to build small cars profitably is one of the reasons GM got into trouble in the first place. If the union gets to dictate production decisions based on what's good for its membership, there is no reason for GM to ever emerge from bankruptcy.

With the government in charge and the UAW protecting hourly workers, GM's white collar employees may feel a bit vulnerable. Another round of layoffs is expected, and those that keep their jobs may find themselves uprooted.

GM's headquarters in downtown Detroit's old Renaissance Center are more than half-empty; just 4,500 people occupy space intended for 10,000 and more cuts are coming. GM may be forced to vacate that prime real estate on the Detroit River and retreat to the suburb of Warren, where there are acres of vacant land at GM's technical center.

What about the cars? Finally, will the new GM (GM, Fortune 500) be a viable company in the sense that people will be willing to buy its products?

Former CEO Rick Wagoner used to argue that cars are different than seats on bankrupt airlines -- buyers shell out lots of money and have an emotional attachment to cars -- and customers would flee in a bankruptcy. As GM has gotten closer to Chapter 11, those arguments have faded.

Retiring vice-chairman Bob Lutz, always as proponent of emotional cars, sees hope. For evidence, he points to the interest shown by members of the government's auto task force in the new Cadillac CTS coupe.

"It got an amazing amount of attention," Lutz said. "Which shows, it doesn't matter where you're employed or what you do, normal people get turned on by great cars."

Support for Lutz's argument comes from the sales analysts at, who believe the effect of the bankruptcy stigma has been overstated. The analysts cited improved Chrysler sales figures for the month of May. "The Chrysler experience should be cause for some optimism that GM's experience will be similarly efficient," said in a statement.

That may be true if GM dealers decide to sell off their inventory at fire-sale prices. Chrysler had been stuffing its channel for months, and dealers were desperate to rid themselves of unsold cars, some of which had been gathering dust for nearly a year.

GM may find itself in a similar situation. It is just one of the changes coming as this former corporate colossus enters bankruptcy. To top of page

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