Akerson Admits GM Bankruptcy Not Well Thought Out
General Motors CEO, Dan Akerson, discussed some of the issues plaguing GM's share price in today's Wall Street Journal. Akerson laments a bloated bureaucracy at Government Motors that has not greatly improved since the company's 2009 bankruptcy process. Despite admitting that the bankruptcy was rushed through without proper planning, the Obama-appointed Akerson did not mention the continued UAW overhangs at the company.
Regarding an inherited bloated management structure at GM and the inefficiencies that went along with it, Akerson stated, "The good thing about our bankruptcy is that it took only 39 days. The bad news is that bankruptcy took only 39 days. If we had been there longer, people would have asked these questions and looked at these things."
As a result of the Obama Administration being able to protect UAW interests in a rushed-through bankruptcy process, many of the underlying problems at GM were not addressed. Akerson points to European problems and bloated management, but journalists neglect to question him on the $25 billion under-funded pension obligations along with an even more neglected additional $6.8 billion in other post-retirement liabilities. The idea that GM is so financially sound that they could buy back government's 32% taxpayer-funded stake in GM has been touted by multiple media sources. The balance sheet, and now the seeming words of caution from Akerson, belies the claims of "fortress-like" financial strength at the company.
I have stated in the past that the Obama Auto Task Force which orchestrated the GM bankruptcy process relied on bankruptcy experts instead of auto industry experts when they restructured GM. Labor costs and pension liabilities were overlooked as the politically powerful UAW had its interests protected. The belief that an influx of $50 billion of taxpayer money and the removal of $28 billion of bondholder debt could permanently fix GM's problems was a major miscalculation. The simplistic view that closing dealerships would greatly lower GM operating costs was also not accurate. Those realities are now coming to light as GM has about the lowest profit margins in the industry, despite all of the taxpayer help.
The Obama Administration did have an opportunity to slow down and think things out during the 363 bankruptcy process. When my group that represented individual GM bondholders requested that the process be slowed down, the Task Force threatened to pull out and allow a total liquidation of GM. GM now has to live with the government's decision to ignore operational weaknesses at the company while striving to ensure that the UAW was not adversely affected.
It appears that Akerson's comments and actions continue to be largely politically-driven. He praises the Obama Administration for not participating in board meetings, but neglects the fact that many of the board members are Obama appointees. The denial that pension obligations and labor costs put GM at a competitive disadvantage is also cause for GM shareholders to be concerned. An illogical and costly focus on the Chevy Volt, which loses money for shareholders but supports Obama green initiatives, increases the likelihood that Akerson is motivated by politics rather than profits.
The cautious words of Akerson give more evidence that GM remains a speculative and dangerous investment choice for retail investors, as well as for the American taxpayers who are forced to stay invested by the Obama Administration as the President campaigns on the "success" of GM. And if the economy declines in the future, GM may have a second opportunity to get the bankruptcy process right.
Mark Modica is an NLPC Associate Fellow.