Uncle Sam should firmly nix GM empire-building
Ed Whitacre just can’t help himself. The executive who rebuilt AT&T from the “Ma Bell” breakup now appears determined to do the same at General Motors. The carmaker he leads — which is 61 percent owned by the U.S. government — is considering a return to the finance business, possibly by acquiring its old GMAC unit. Such recidivism is troubling on so many levels.
The worry that Whitacre would return to his empire-building ways was the primary knock against his suitability for the job in January. In his previous gig, Whitacre cobbled together a national telecoms juggernaut out of SBC, one of the regional Bell operating companies created by the government-mandated diaspora of the old AT&T.
Yet GM’s challenge was not to recreate its past footprint a la AT&T, but to slim it down, focusing on a more limited offering of higher-quality automobiles. While GM has jettisoned or pledged to shutter some of its smaller distractions — including Saab, Pontiac, Hummer and Saturn — it ended up retaining its biggest, Europe’s Opel.
That decision might have been defensible based on the remuneration GM would have received, the automotive technology it would have transferred and the prospect that it could turn this leg of its core car business around. But that would not be the case for a return to banking, even one focused on financing car purchases.
For one, it’s a clear case of mission drift. GM has yet to repay the government for its $50 billion conversion of loans into a majority stake in the company. GM executives might argue that a return to auto financing would make GM’s equity more appealing, thus facilitating a more robust initial public offering of the company.
That’s just not true. GM’s priority — and one that public shareholders would reward — is to return to a level of sustainable profitability in its primary business of manufacturing decent cars. And even after wiping out $90 billion of debts and other obligations, GM failed to make a profit in the second half of 2009.
The only other plausible argument would be that without a captive financing arm, GM is at a disadvantage by being unable to offer cheap loans to consumers who can’t afford its cars. Yet that’s precisely the kind of poor credit judgment that led GM to divert its attention from quality and GMAC to make dud loans and mortgages that culminated in a $17 billion taxpayer rescue.
If Whitacre wants to rebuild an empire, he’s chosen the wrong job.