Commentary

GM to Government: Take Us Over

General Motors appears to be giving up on its ability to compete in the market place. Today, it effectively asked the federal government to take over. In exchange for $11.6 billion in federal aid, GM would swap out debt for government equity, allowing the federal government (U.S. taxpayers) to hold a majority ownership in the company. According to the Wall Street Journal,

GM is surviving on U.S. federal loans and needs to secure deals with employees, creditors and the U.S. auto task force by a June 1 deadline.

The new plan envisages the U.S. Treasury extending an additional $11.6 billion to GM, in addition to $15.4 billion in existing loans.

The government will forgive half the debt in exchange for equity in a restructured GM. The auto maker expects to get the additional aid.

Mr. Henderson said earlier this month the White House had demanded “faster, deeper” cost cutting. Under the latest plan, the company will idle one additional factory and look to eliminate 500 additional dealers.

Samuel R. Staley, Ph.D. is a senior research fellow at Reason Foundation and managing director of the DeVoe L. Moore Center at Florida State University in Tallahassee where he teaches graduate and undergraduate courses in urban planning, regulation, and urban economics. Prior to joining Florida State, Staley was director of urban growth and land-use policy for Reason Foundation where he helped establish its urban policy program in 1997.