That level of government ownership is something new under the sun, and not just in the United States. Even in Europe, where government ownership has been much more common, it has typically been in the form of a "golden share" that constitutes a corporate veto â€" not outright majority ownership.
It probably won't be long before the European Union, Japan, China and other trading partners start squawking about unfair competition, especially if Treasury ends up with a large stake in Chrysler, as well. That reaction could be muted by the fact that the auto industry is in a deep slump in those countries, too, so other governments may be forced into similar positions.
Meanwhile, the GM proposal is also going to make it harder in the future for U.S. trade negotiators to argue against the principle of government subsidies in other countries -- even if the U.S. government is able to get GM back into the private sector quickly.
All that would be astounding enough, but the second shoe to drop at GM is that the UAW would be the second-largest owner of GM, with around 40 percent of the revamped company. The UAW is also widely reported to be lined up to take a large chunk of Chrysler, maybe even a majority, according to Automotive News.
GM CEO Fritz Henderson said in a press conference on April 27 that GM's plan to cut its corporate debt calls for the U.S. Treasury and the UAW combined to own a combined 89 percent of GM. He also said Treasury would own at least a majority stake. That implies Treasury would own at least 51 percent and the UAW would own 38 percent.
The final numbers also depend on how many of GM's bondholders accept an offer from GM to swap GM debt for shares in the reconstituted company. But if Treasury and the UAW own at least 89 percent, that doesn't leave much for the bondholders, who have already rejected earlier offers from GM.
All told, Henderson said GM needs to reduce its total debt by $44 billion. Besides the "haircut" to be suffered by the bondholders, that also includes the U.S. government's willingness to swap some of the money it has already loaned to GM for equity. It also assumes that the UAW will accept equity instead of cash, for some of GM's contributions to the trust responsible for health care benefits.
Henderson made it plain that unless bondholders representing at least 90 percent of GM's debt agree to the plan by late May, GM will file for bankruptcy June 1.
"To restructure out of court is our preferred course," Henderson said. "If this cannot be accomplished out of court, we will accomplish this restructuring in a bankruptcy court situation, if we need to," he said.
Henderson said the U.S. Treasury has not expressed any desire to run GM's operations on a day-to-day basis. However, Treasury's auto task force already fired Rick Wagoner, Henderson's predecessor, a month ago, so the government certainly has demonstrated a willingness to intervene.