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Washington Played a Big Part in GM Turnaround

Gm Building
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Gm Building

When executives from General Motors begin pitching its public stock offering to investors this week, they will extol the company’s financial turnaround, its snazzy new car lineup led by the plug-in Chevrolet Volt, and its growing operations in China and other international markets.

Absent from the pitch? The extraordinary role that the federal government has played in fixing the nation’s biggest automaker.

While the government’s $50 billion bailout last year saved G.M. from liquidation, the Obama administration has taken great pains to distance itself from any appearance of running the company. Even a hint of government meddling, administration officials say, could have a negative effect on the value of the American taxpayers’ stake in a publicly traded company.

Yet interviews with G.M. and federal officials show decisions by the government have played a pivotal role in shaping the automaker’s leadership, its business strategies, and now its initial stock offering, which will raise an estimated $10.6 billion at the same time that it reduces the taxpayers’ stake in the company from 61 percent to below 40 percent.

People familiar with the contact between G.M. and the Treasury Department say Ron Bloom, a senior adviser to the Treasury secretary Timothy F. Geithner, is told about actions that G.M. management and the board are contemplating before they occur.

In April, for example, Edward E. Whitacre Jr., the chairman of the G.M. board who also served until recently as its chief executive, discussed a number of possible moves at a meeting in Washington with Mr. Geithner and Mr. Bloom, including G.M.’s plan to buy a finance company.

Similarly, Mr. Bloom was informed beforehand of Mr. Whitacre’s decision to resign as chief executive and the board’s decision to name Daniel F. Akerson — who was one of the government’s hand-picked directors — to succeed him.

Large private investors, like Kirk Kerkorian or Warren E. Buffett, rarely involve themselves in the day-to-day running of companies they hold major stakes in. Instead, they tend to recommend broad strategic parameters and appoint directors to oversee the execution. The Obama administration has taken a similar tack with G.M., the interviews show.

To ensure a fresh start for the company, the government chose a new chairman and several new directors for its board, which in turn picked two of its members to serve as successive chiefs of the company.

The government also set parameters for G.M.’s strategic direction — fewer brands and models, a leaner organization, and a sweeping overhaul of its plodding corporate culture.

And now the government is playing an integral role in the stock sale by deciding how many of its 304 million shares it will sell off and at what price.

“The government has not abdicated control, they have exercised it through the board of directors,” said M. P. Narayanan, a finance professor at the University of Michigan. “If you own 60 percent of the company, you set the direction and let your board carry it out.”

Publicly, the Treasury Department has taken a hands-off approach to current management at G.M. and says it is eager to sell off its shares as soon as possible. It has been a delicate balancing act; while the government avoids direct involvement in decisions at G.M., it still requires management to keep it informed of any major move.

“Demonstrating our discipline on two fronts is integral to protecting the American taxpayer,” said Brian Deese, a member of the president’s auto task force that shepherded G.M. through bankruptcy. “One is letting G.M. make its own decisions and run the business. The other is making good on our commitment to exit as quickly as practicable.”

The point man for the Obama administration has been Mr. Bloom, a central member of the auto task force. Since G.M.’s emergence from bankruptcy in July 2009, Mr. Bloom has kept in regular contact with Mr. Whitacre and Mr. Akerson, who succeeded Mr. Whitacre as chief executive in September.

Otherwise, the revamped board has carried out much of the agenda that the administration’s task force laid out for G.M. after bankruptcy. With Mr. Whitacre taking the lead role, the board hired a new chief financial officer and replaced a number of longtime G.M. executives with younger people and outside hires.

“The government wanted to see new faces in senior management, and the board took care of that,” said David Cole, a founder of the Center for Automotive Research in Ann Arbor, Mich.

Mr. Cole, whose father was once the president of G.M., said the government had “behaved prudently” in allowing the new management team sufficient latitude to make day-to-day business decisions.

“It’s certainly easier for the administration to take that point of view given how G.M. has performed,” he said. “They can afford to stay out of the details because the company is making money again and is positioned well in the marketplace.”

G.M. was profitable in the first six months of this year, and is expected to report a third-quarter profit as well. The company is also investing in new products, adding jobs, and making moves to cut its debt and fund pension obligations in advance of the stock offering.

The Treasury Department has taken a more direct role in influencing the stock sale at G.M.

Regarding the size of the offering, Washington has been somewhat at odds with G.M. and the Wall Street underwriters.

Whereas G.M. and its bankers wanted the largest offering possible, the Treasury was more interested in getting the best price for the taxpayers’ shares. The government ultimately agreed to sell about one-third of its holdings for a price ranging from $26 to $29 a share after a three-for-one stock split, which it hoped would give the stock room to appreciate in value and bring bigger returns on future divesting.

Mr. Whitacre said in August that he hoped the government would sell all of its shares in the offering and remove the “government motors” label for good.

But that notion ran counter to the Treasury’s goals, and G.M. abruptly stopped commenting on what the government might do with its shares. Even with a sale of a third of its stock, the government will still be the largest shareholder in G.M. for some time to come, perhaps years.