New Prez Holds Hot Potato in GM Bailout

Here's a hot potato for the new commander in chief: Having just scored $25 billion in low-cost federal loans to develop fuel-efficient vehicles, General Motors (GM) and Chrysler are back, hat in hand, looking for more billions to assist their proposed merger. George Bush decided to pass on this one, leaving it to you. Can you blame him?

The biggest potential political problem here has nothing to do with Detroit, and everything to do with Wall Street, specifically, Cerberus, a private-equity firm based in New York City. Bush's former Treasury secretary, John Snow, is chairman; ex-Vice President Dan Quayle has been a prominent spokesman; and the firm's chief executive, Stephen Feinberg, is estimated by Forbes to be a billionaire and gives generously to Republican causes. Cerberus bought Chrysler from Germany's Daimler and owns 51% of General Motors' GMAC finance unit. It's hard to imagine a much riper target for Democrats and maverick Republicans looking for a scapegoat for the excesses that brought on the financial meltdown.

Initial news of the Treasury's financial rescue operation, widely dubbed a bailout for Wall Street tycoons and bankers, triggered a populist backlash that inundated Congress and led the House to vote down the proposed legislation. There were plenty of people so angry at the prospect of their tax money being used to line the pockets of the very people whose reckless lending and investing caused the crisis that they didn't seem to care if the whole financial system crashed and burned. In the ensuing chaos, some of this rage seems to have been suppressed. Congress eventually passed the TARP legislation and fuming talk-show hosts and their legions of followers mostly swallowed hard and accepted the fact that something had to be done that would help ordinary working Americans. But does anyone think this anger has gone away?

Now let's imagine some kind of GM/Chrysler bailout, which would inevitably be a Cerberus bailout. Our tax money would be going to help Feinberg, Snow and Quayle out of a tight fix of their own making, Cerberus having shown spectacularly bad timing in plunging into a U.S. auto industry that's only getting worse by the month. (GM's just-reported October sales were down 45%.) Hmmm. I can just imagine what Lou Dobbs would do with that one. No doubt Cerberus will trot out a list of investors that includes pension funds, hospitals, universities and other worthy causes, all of whom stand to benefit, too. Good luck to them. Most people will see only private equity, the secretive, high-return, high-leverage, exorbitantly compensated vehicles that are off-limits to ordinary mortals.

This is even before a new president gets to the merits of the proposed merger, which strikes me as even more wrong-headed than the Sears-Kmart combination, which I derided at the time. The idea that the combined company would get government assistance and still be headed by GM's Rick Wagoner, the man who bet the store on SUVs, is an affront to common sense. Better to keep Chrysler's Robert Nardelli, the blunt ex-Home Depot (HD) chief executive, who at least brings fresh ideas to the table. As for auto workers, the only way something like this could possibly work would be to slash car models -- and that means slashing jobs.

As president, I wouldn't go near a GM-Chrysler deal. The country needs a comprehensive approach to struggling industries just as it did  to the financial system, not selective bailouts. And it may need it fast.