Letter to President Obama and GM CEO

May 26, 2009

President Barack Obama

The White House

1600 Pennsylvania Avenue NW

Washington, DC 20500

Fax: 202-456-2461

Mr. Frederick Henderson

General Motors Corporation

300 Renaissance Center

Detroit, MI 48243

Fax: 815-282-6156

Dear President Obama and Mr. Henderson,

There is no question that the reorganization of General Motors, after decades of managerial failure and amidst the most severe economic downturn of the last 70 years, is a matter of enormous complexity. But the publicly available information about GM and the auto task force’s plans raise many disturbing questions. Given both the significant public investment in the reorganization, and the extraordinary public interest in seeing the reorganization succeed in achieving public objectives, it would be a mistake to proceed with reorganization plans crafted behind closed doors and not publicly vetted. Before any irreversible moves are made — including, especially, entrance into voluntary bankruptcy — the GM/task force reorganization plan should be submitted to Congress for deliberative review and decision.

To the outside world, the priority of GM and the task force seems to be to preserve GM as a going concern. Less apparent is: to whose benefit?

Would it make sense for the government to invest tens of billions of taxpayer dollars in GM to enable it to shift much more of its production for the U.S. market outside of the United States? The answer is, plainly, “no,” highlighting the larger principle: From the public’s standpoint, the reorganization makes sense only if it serves the public interest.

There are numerous features of the GM/task force plan that, on their face, appear to contravene this public interest. Perhaps there are legitimate rationales for the choices made; if so, they should be presented and debated in the Congress, as was the 1979 Chrysler bailout and the Conrail restructuring. Among the many unanswered questions and concerns expressed by Members of Congress and the public about the GM/task force plan:

Has the task force evaluated the social ripple effects on suppliers, innovation, dealers, newspapers, banks and others that hold company stock and/or are company creditors, and other unique harms that might stem from bankruptcy? Has it conducted any kind of formal or informal cost-benefit analysis on the costs of a GM bankruptcy and excessive closures, including the social effects of lost jobs (including more than 100,000 dealership jobs alone), more housing foreclosures, the government expense of providing unemployment and social relief, lost tax revenues, supplier companies that will be forced to close and impacts on GM industrial creditors?

Does GM really need to close as many dealerships as have been announced? Is the logic of closing dealers to enable the remaining dealers to charge higher prices? (See, for example, Peter Whoriskey and Kendra Marr, “Chrysler Pulls Out of Hundreds of Franchises,” Washington Post, May 15, 2009); and if so, why is the government facilitating such a move, since dealers do not cost GM, given its “adhesion-like” contracts?

Has the task force maintained the Bush administration-imposed obligation for unionized auto workers at GM and Chrysler to accept wages comparable to those in non-unionized Japanese company plants in the United States? This requirement is especially troubling given the low contribution of auto manufacturer wages to the cost of a car (10 percent), and that it may set off a downward spiral of wages, with the non-union plants no longer needing to compete with union wages, and union wages following those in non-union plants.

Why isn’t the task force obtaining guarantees that, after restructuring with U.S. taxpayer financing, GM cars sold in the United States be made in the United States? What is the conceivable rationale for permitting GM, sustained by taxpayer dollars, to increase manufacturing overseas, especially in dictatorships, for export back into the United States?

How will bankruptcy affect GM’s overseas subsidiaries, with special reference to China and GM’s corporate entanglements with Chinese partners? Are these GM assets and their profits being exempted from conditions being imposed on domestic operations? If there is such a disparity, is it reasonable and unavoidable?

How will bankruptcy affect GM’s obligations to parties engaged in pending or future litigation in the courts with GM regarding serious injuries suffered because of design or product defects in vehicles sold prior to the bankruptcy? There are suffering human beings who are wondering about monetized minds ending their day in court.

How will bankruptcy affect GM’s obligations to parties engaged in lemon litigation — suits to get auto design or manufacturing defects fixed or cars replaced?

Is the task force insisting on too many plants closing and the elimination of too many brands?

* What guarantees is the task force, supposedly representing the taxpayers’ investment, obtaining to ensure that the GM of the future invests in safer and more fuel efficient vehicles, and what investments will the new company make in ecologically sustainable technologies? How will a potential bankruptcy filing affect, ignore or preclude any such future investments and commitments?

There are also the acute business judgment questions: Will a bankruptcy filing go as smoothly and quickly as GM and the task force apparently believe? Doesn’t the complexity of the GM corporate entity as contrasted with Chrysler highlight the limitations of relying on the Chrysler precedent, which is in any case not yet established?

What will be the effect of bankruptcy on consumer confidence in the GM brand? What has changed to dispel the conventional wisdom of six months ago, which held that bankruptcy would be disastrous for consumer purchasing confidence?

There are difficult questions, as well, about whose interest GM, the corporate entity, is advancing. It is plainly not advancing interests of its powerless owner-shareholders, who will see their equity dissolve to near worthlessness. GM’s bondholders and creditors are unhappy with the proposed reorganization plan. More public stakeholders — workers, consumers, victims of defective products, and communities — are also ill-served by important features of the plan, as we suggest above. Exactly what principles are guiding GM’s handling of the reorganization?

Moreover, do both of you realize the difficulties of full disclosure of properly valued assets and creditors worldwide that even lenient bankruptcy courts require to meet the fiduciary obligations of top GM executives? On this point, Mr. Henderson’s imagination is more fertile than the outsider President.

An expected June 1 bankruptcy declaration looms over any meaningful consideration of these and many other questions by Congress and the public. The task force declares June 1 as its deadline because of a scheduled bond payment. But there must be creative negotiating strategies to avoid that purported obstacle. In any case, the $1 billion due in bond payments pales in comparison to the extraordinary sums poured into AIG ($180 billion, plus), Citigroup ($330 billion in loans and guarantees) and other financial-speculative firms. (The question of the legality of any government funds for GM and Chrysler is for another day.)

This is a moment that calls for leadership, including the steadfastness to defend the importance of our deliberative democratic institutions. T here’s too much at stake, with too many social, economic and political consequences for a bankruptcy declaration and the reorganization plan to proceed without Congressional action.

Sincerely,

Ralph Nader Robert Weissman, Charlie Cray,

Essential Action Center for Corporate Policy

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