"Politicians Butt In at Bailed Out GM" WSJ Article

[stjaba]

Politicians Butt In at Bailed-Out GM
By NEIL KING JR.
Montana Rep. Denny Rehberg was no fan of the $58 billion federal rescue of General Motors Co., saying he worried taxpayer money would be wasted and the restructuring process would be vulnerable to "political pressure." Now the lawmaker says it's his "patriotic duty" to wade into GM's affairs.

Along with Montana's two Democratic senators, the Republican congressman is battling to get GM to reinstate a contract with a Montana palladium mine nullified in bankruptcy court. "The simple fact is, when GM took federal dollars, they lost some of their autonomy," Mr. Rehberg says.

Montana Sen. Jon Tester, at a Stillwater Mine in Nye, Mont., is trying to protect the mine's GM contract.
Federal support for companies such as GM, Chrysler Group LLC and Bank of America Corp. has come with baggage: Companies in hock to Washington now have the equivalent of 535 new board members -- 100 U.S. senators and 435 House members.

Since the financial crisis broke, Congress has been acting like the board of USA Inc., invoking the infusion of taxpayer money to get banks to modify loans to constituents and to give more help to those in danger of foreclosure. Members have berated CEOs for their business practices and pushed for caps on executive pay. They have also pushed GM and Chrysler to reverse core decisions designed to cut costs, such as closing facilities and shuttering dealerships.

Democratic Sen. Amy Klobuchar of Minnesota persuaded GM to rescind a closure order for a large dealership in Bloomington, Minn. In Tucson, Arizona Democratic Rep. Gabrielle Giffords did the same for Don Mackey, owner of a longstanding Cadillac dealership with 80 employees. Rep. Giffords argues it made sense, even for GM, to keep the Mackey dealership, which sold 750 cars last year. "All I did was to help get GM to focus on his case," she says.

Lawmakers say it's their obligation to guard the government's investments, ensure that bailed-out firms are working in the country's interests and protect their constituents.

Executives say congressional demands gobble up time and make a rocky business environment even more unpredictable. Bank chief executives say incessant calls from Capitol Hill, combined with threats of legislation, were among the main incentives for them to pay back money injected by the government and escape Washington's clutches.

Thomas Geisel, chief executive of New Jersey's Sun Bancorp Inc., says the bank paid back its federal money in June because of legislation that imposed limits on bankers' pay, among other areas. "Lawmakers let emotion and ego get in the way of making good business decisions," he says.

Probably no company has been more on the receiving end of congressional attention than GM, whose widely scattered factories, suppliers and dealership network put it in touch with nearly every U.S. congressional district. After committing $58 billion to keep the company afloat, the federal government took a 60% stake in the auto maker when the slimmed-down GM emerged from bankruptcy.

In May, even before the government's ownership became official, lawmakers erupted when GM disclosed it planned to produce a new subcompact car at its factories in China. Under congressional pressure, GM dropped those plans and promised instead to retool an existing U.S. facility in Michigan, Wisconsin or Tennessee for the new model.

Lawmakers from those states demanded and received high-level meetings in Washington to quiz GM on the criteria for site selection and to tout their states. GM in the end picked a site in Michigan.
Pete Lopez, a GM dealer in Spencer, W.Va., testifying before a Senate committee in June.
That same month, GM dealer Pete Lopez in Spencer, W.Va., received notice that GM was giving him just over a year to shut down his Chevy, Pontiac and Buick dealership, which he'd acquired two years earlier. GM's move to shutter more than 1,300 dealerships -- about one-quarter of its network -- was central to its restructuring because it cleared out underperforming showrooms and brought the network more in line with its shrunken sales.

With an assist from his mayor, Mr. Lopez took his complaint straight to one of his state's senators, Jay Rockefeller, the Democratic chairman of the powerful Commerce Committee.

Sen. Rockefeller sent a letter to GM headquarters on Mr. Lopez's behalf, according to a staff aide. He arranged for Mr. Lopez to come testify before a Senate panel in early June, alongside GM Chief Executive Frederick "Fritz" Henderson. The senator introduced the two men, giving Mr. Lopez a chance to make a personal pitch.

"He couldn't have been nicer," Mr. Lopez said of the GM CEO. "He said to me, 'We've made some quick decisions and now we're going to look it all over again.' "

The GM chief executive put Mr. Lopez in touch with Mark LaNeve, then the company's top official for North American sales. The dealer received a response on the last Saturday in June while fishing on a lake near his house.

"Mr. LaNeve called and said, 'I've got some good news for you. We're going to save your dealership,' " Mr. Lopez recalls. He says he owes it all to Sen. Rockefeller.

Similar rescues have played out across the country. Sen. Charles Schumer and Rep. Dan Maffei, both New York Democrats, helped save Crest Cadillac of Syracuse. "There would not have been a Cadillac dealership in all of central New York," says Mr. Maffei. "That would have been a problem." Mr. Maffei insists there was no "strong-arming here. We GM apparently agreed with Rep. Maffei's logic. "The company contacted me and said they didn't want to leave Syracuse without a Cadillac dealership," says James Barr, Crest's general manager, adding that he is now "one of Congressman Maffei's biggest fans."

So far, GM has given reprieves to 70 dealerships nationwide. GM's Washington spokesman says congressional pressure helped "put a focus on an individual dealer's plight." Beyond that, he said, "decisions to save individual dealerships were made on the merits."

In addition to the dealership issue, lawmakers have jumped into a union fight that pits GM and Chrysler against two trucking companies that haul new cars around the country. The auto makers want to give some of the work to cheaper nonunion contractors. But that raised the ire of lawmakers who support the International Brotherhood of Teamsters.

Rep. Dale Kildee, a Democrat from Michigan, sent letters on Sept. 30 to the chief executives of both GM and Chrysler, demanding they explain their positions and advising them to stick with their unionized carriers. At least four other lawmakers sent similar letters.

Chrysler defended its plans in an Oct. 2 letter, saying it would save $31 million over three years by shifting some of the work to other carriers. GM, then in the middle of contract talks, replied in its own letter that it had "no plans to phase out unionized hauling companies" but added that it was pursuing new contracts that made the most sense for the company.

Meanwhile, Sen. Sheldon Whitehouse, a Rhode Island Democrat, is spearheading a push within the Senate to get GM to rejoin an environmental program that removes mercury from cars headed to the scrap heap. GM escaped its obligations under the program through the bankruptcy process. Some lawmakers, as well as state officials, are now trying to reverse that.

In Montana, the fight that broke out this summer was over a mining contract to supply palladium, which GM needs to produce catalytic converters. It's an arcane piece of the company's business that has absorbed a large amount of management attention.

GM for years was supplied by the Montana-based Stillwater Mining Co., which bills itself as the country's only supplier of the precious metal. In early July, Frank McAllister, the mine's chief executive, received news that GM, as part of its bankruptcy proceedings, planned to sever its ties with Stillwater in favor of cheaper suppliers in Russia or South Africa.

"I thought, for heaven's sake, this doesn't make any sense," says Mr. McAllister. "Taxpayer dollars are keeping GM alive, just so it can turn away from U.S. workers?"

Montana's two Democratic senators, Max Baucus and Jon Tester, issued a sharper response. The two sent a letter July 22 to GM's Mr. Henderson, saying they found the decision to break the Stillwater contract "appalling," especially since "General Motors only exists today due to the direct assistance of American taxpayers."

The two senators -- Mr. Baucus is chairman of the powerful Senate Finance Committee -- asked GM to reverse its decision.

Robert Socia, GM's head of global purchasing, replied two days later. The decision to dissolve the contract in bankruptcy court wasn't taken lightly, he wrote. But it was GM's obligation to trim costs however it could.

"The best way to repay taxpayers is to run the business as efficiently and cost-effectively as possible," Mr. Socia wrote. "Uncompetitive supplier agreements do not support this priority."

Three days later, Rep. Rehberg called for a congressional hearing on the voided contract. GM, he said at the time, "ought to be subjected to the same rigorous oversight we exercise over any other government agency."

"I was elected to represent the interests of Montana, not General Motors, which is something that GM should have considered before letting the federal government assume control of their company," Rep. Rehberg said recently.

Montana Gov. Brian Schweitzer joined in as well. He stopped driving his Chevy pickup to protest the contract's cancellation. And he peppered GM's top brass with phone calls, according to his office and GM officials.

Under pressure from Gov. Schweitzer and Montana's congressmen, GM agreed in early August to meet with Stillwater's CEO at GM's Detroit headquarters.

The meeting didn't go well for the mining executive. GM officials made clear they didn't intend to reopen the contract. At best, they would consider Stillwater's bid in 2010.

In late September, Sen. Tester wrote again to GM, asking the company to divulge how much it was paying for its palladium. GM declined to provide specifics. In a return letter, Ken Cole, GM's chief of government relations in Washington, did reveal that the company, by turning to new suppliers, was saving $72 million a year on precious-metals contracts.

Stillwater's CEO, who plans to meet soon with the Treasury Department team overseeing the GM bailout, says he's uncomfortable with relying on help from Congress. "I think that business should stand on its own," Mr. McAllister says. What makes this case different, he argues, is that "GM went to the public trough."

Sen. Tester says he isn't just trying to protect a local mine, but is doing it for GM, too. Reinstating the contact "would be in the best interests of GM," he says. "They are dealing with mines in foreign countries, with all the whims of whatever they may do. This is a matter of stable supply." The senator says that GM would also help burnish its image by protecting local jobs.

Two senators, Republican Bob Corker of Tennessee and Democrat Mark Warner of Virginia, have proposed legislation that would shield the car companies from lawmakers' impulses. Their proposal would create an independent trust to hold shares in companies where the government's ownership exceeds 10%. The trust would seek to shed the shares by the end of 2011.

"What I like about this is that it would move us away from meddling in these companies," Mr. Corker says.

GM's spokesman says the company will keep an open ear. "Being responsive to members of Congress while moving forward on our business plan," he says, "is the best way to repay the nation's support."

[Admiral Yi]

That's awesome.

[KRonn]

Lol. What a surprise, Congress behaving badly!     

[grumbler]

Lol. What a surprise, Congress behaving badly!     

Indeed.  Another powerful reason why the cure can be worse than the disease. Bailouts are almost always mistakes for these reasons as well as the compelling economic ones.

[Berkut]

I told you so.

[Caliga]

Same, but I mean... wasn't it painfully obvious?

[Grallon]

How is it that congressmen can meddle in the operations of GM after the bailout bill has been approved?  If there's any meddling to be done isn't it the responsability of the Executive?



G.

[Admiral Yi]

How is it that congressmen can meddle in the operations of GM after the bailout bill has been approved?  If there's any meddling to be done isn't it the responsability of the Executive?

Fear of further legislation.

[dps]

How is it that congressmen can meddle in the operations of GM after the bailout bill has been approved?  If there's any meddling to be done isn't it the responsability of the Executive?



G.

I think that the answer to this might tie into the thread we had recently where a bunch us U.S. citizens tried to explain to Marty that the President doesn't have as much power as foreigners often seem to think he has.

[The Minsky Moment]

How is it that congressmen can meddle in the operations of GM after the bailout bill has been approved? 

They can pass legislation; issue subpoenas; hold hearings.

[MadImmortalMan]

How is it that congressmen can meddle in the operations of GM after the bailout bill has been approved? 

They can pass legislation; issue subpoenas; hold hearings.

Rally the public against you in frothing populist rage.

[Hansmeister]

How is it that congressmen can meddle in the operations of GM after the bailout bill has been approved?  If there's any meddling to be done isn't it the responsability of the Executive?



G.

Funny thing is that no "bailout" bill was actually ever approved.  The law does not actually permit the use of TARP funds to bailout the car makers, something that both Bush and Obama ignored.

[Neil]

How is it that congressmen can meddle in the operations of GM after the bailout bill has been approved?  If there's any meddling to be done isn't it the responsability of the Executive?

G.

Funny thing is that no "bailout" bill was actually ever approved.  The law does not actually permit the use of TARP funds to bailout the car makers, something that both Bush and Obama ignored.

So where's the lawsuit?

[grumbler]

So where's the lawsuit?

There are several.  One that I know of was filed by the state of Indiana on behalf of its public employees pension fund.  Though I don't know (or care much) about the status of that suit, you could look it up if you do care.

[alfred russel]

Even though they pay less than their private competitors, I'm sure all the top executive talent wants to work for our government controlled enterprises. What a great experience it must be to have Congressmen helping you out with business decisions.