True, no gain, but also less pain

Here’s a simple bottom-line answer to the question of whether you, the new taxpayer-owner of General Motors, will make an investment profit on your new $50-billion, 60.8% stake in the company:

No.

But in the wonderland where politics and economics meet and marry, things aren’t that simple. There the question boils down to this: How much is it worth to save the U.S. economy? The answer may well make the GM deal look like a bargain, for the choice may be between the nation’s making this investment now and facing a future with a hollowed-out industrial midsection bereft of factories, commercial strips and households.

Whether the government’s novel venture into industrial ownership will save the economy, or whether it’s even a necessary component of an economic recovery, are questions certain to be widely debated in the coming months while GM hares its way through an expedited bankruptcy reorganization.

Some will say the government has no place meddling in a company’s destiny under any circumstances. One argument is that it lacks the mind-set to succeed in the private sector.

Some people are uneasy about compromising the traditional independence granted private enterprise in the U.S.A. This isn’t that much of a “tradition,” though, when you consider the long history of federal lifelines thrown to drowning industries. The government bailed out the airlines after 9/11, gave loan guarantees to Lockheed Aircraft Co. and Chrysler Corp. in the ‘70s, and propped up banks, railroads and industrial firms of all descriptions during the Depression.

These government efforts aren’t generally based on Warren Buffett-style investment considerations.

The GM bailout certainly isn’t. In the simplest mathematical terms, when all is said and done the U.S. government will have spent about $41.2 billion to acquire a 60.8% stake in the new General Motors. (The feds will have contributed a total of about $50 billion in bailout financing but will hold $8.8 billion of debt and preferred shares that will, hopefully, be repaid or redeemed someday.)

The idea is for GM to emerge from bankruptcy by Labor Day, ready to rebuild its value in the stock market’s eyes. But the taxpayers won’t break even on their stake until the stock market values the new GM at about $68 billion, at which point the government’s shares could start to be sold off at a profit.

How likely is it that the company will hit that value any time soon? The peak stock market value of the old GM, reached in 2000, was about $52 billion.

That GM was still an American industrial behemoth, not the comparatively pipsqueak new GM expected to emerge after a three-month slimming treatment in bankruptcy spa. To be fair, the old GM also had more than $130 billion in debt, which considerably raised its overall “enterprise value;” the new GM will start out with much less debt and consequently harbor more potential value for the stockholders.

There’s a microscopic chance that taxpayers will turn a profit -- if the company’s fortunes and the economy unexpectedly surge and the government stays in for the long haul. Still, if you were a conventional stock market maven, you would probably take one look at this deal and run like hell. Even so, there’s a remote chance it may someday pay off.

But government has broader concerns. Try to factor in the incalculable economic cost of a GM collapse, including the direct loss of tens of thousands of jobs. (GM will still have about two-thirds of the 96,000 blue- and white-collar workers on its payroll last year.)

The indirect impacts would ripple and build: scores of suppliers thrown into bankruptcy and thousands of dealerships put out of business. Whole communities that had been dependent on GM and its commercial tendrils impoverished. Towns and cities with a vibrant past but no future. The nation’s manufacturing infrastructure decimated; once an enterprise the size of GM is liquidated, it can’t be replaced for years, if ever. In terms of politics as well as policy, this is a choice that President Obama could not make.

GM still encompasses tens of billions of dollars in implicit value. Even after sharp reductions in pension and health benefits, it supports hundreds of thousands of retirees who might otherwise become the taxpayers’ wards. Its products have regained considerable esteem across the country, especially outside import-happy California, and it has made promising strides in fuel-efficiency technologies.

One can make a very good argument that when the collapsing auto market and the freezing of the credit market cut two crucial legs of support out from under the strapped GM, the government did the right thing by stepping in. What it’s providing is a bridge to allow GM and its dependents to reach what may be a profitable future. With the government’s help, the company may deliver on its promise or it may not; the only certain thing is that without the government’s help, it has no chance.

That said, the government’s huge ownership stake will raise questions of policy and politics that were at best peripheral in those earlier rescues of Lockheed, Chrysler and the others.

All that will separate the administration’s action from a garden-variety “nationalizing” of GM will be how, or whether, it exploits its authority. The White House hasn’t been too shy to throw its weight around in recent months, forcing out Rick Wagoner as chief executive in favor of his onetime lieutenant, Fritz Henderson. It also evidently jawboned bondholders into voting to accept a debt-for-equity swap as a precursor to Monday’s filing.

Henderson made clear Monday that the government still intends to wield the power of the purse to keep its restructuring moving smartly along -- the Treasury would withdraw financial support for the process, he told the Bankruptcy Court, if the court didn’t approve certain steps by July 10.

Yet how far can the government go? Administration officials familiar with the negotiations with GM alluded Sunday night to the “tension” between the need to protect the taxpayers’ investment and the impulse to withdraw from ownership as soon as possible.

Some politicians, especially conservatives, will be agitating to sell the government stake almost immediately upon the company’s emergence from bankruptcy. It’s certainly fair to acknowledge that as long as the U.S. government remains GM’s majority shareholder, every one of its policy initiatives in the transportation or energy sector, whether it’s mandating better fuel economy or introducing new safety standards, will be weighed for its impact on the people’s car company.

On the other hand, it’s likely that the quicker that sale takes place, the lower the price the government gets and the more potential recovery for taxpayers will be left on the table.

In 1953, during his confirmation hearings for secretary of Defense, GM President Charles E. Wilson was asked whether he’d be comfortable making a decision that would go against his old company’s interests. He couldn’t imagine doing so, he said famously, because “for years I thought what was good for the country was good for General Motors and vice versa.”

The Obama administration’s GM rescue plan has given Wilson’s quote a whole new dimension. It may have been a necessary step, but it may not inaugurate a very comfortable journey.

--

Michael Hiltzik’s column appears Mondays and Thursdays, and occasionally at other times. Reach him at michael.hiltzik@latimes.com, read his previous columns at www.latimes.com/hiltzik, and follow @latimeshiltzik on Twitter.