Leading article: A gamble on four wheels

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Eric Garcia

Washington Bureau Chief

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The origins of General Motors' problems go back decades, but its filing yesterday for Chapter 11 protection was still a historic moment.

"What's good for General Motors is good for the country," may have slightly misquoted a remark by a former GM chief executive at the very zenith of GM's fortunes in the 1950s. But it summed up the centrality of the company in America's economic firmament. Now a corporate colossus that not long ago was the largest manufacturing entity on earth, symbol of the industrial might of the world's most powerful country, survives thanks only to the US government, its saviour of last resort and, for the time being, its majority owner.

Some will be tempted to draw an even wider lesson from the debacle – that the demise of GM sounds the death knell for American economic hegemony, marking the moment when the baton passed from the US version of market capitalism to the more statist versions of China and other emerging economies. But that is not so. The lesson of GM's failure is simply that no manufacturing company, however large, however encrusted in tradition, can survive if it cannot control its costs, and if it cannot make products people want to buy at a price they can afford.

Therein lies the huge gamble taken by the Obama administration. "This is the end of an old General Motors and the beginning of a new one," the White House declared, as the last pieces in the bankruptcy filing fell into place at the weekend. The president is betting that a revamped, slimmed down and nimbler company can succeed where the ponderous old one failed.

Under the administration's plan, a refashioned GM, having closed a dozen plants and shed at least 20,000 jobs, will be able to emerge from court protection in barely three months as a viable undertaking. But there is no guarantee this will happen, even after the elimination of the bulk of GM's debt, and the infusion of a further $30bn of taxpayers' money. Although the company will continue to operate during bankruptcy, the very process carries a stigma from which its Japanese and German competitors may well benefit in the short term, making GM's longer term recovery more difficult.

The government too is undoubtedly sincere when it says it has no ambitions to enter the car business on a long-term basis, and intends to leave the day-to-day running of the company in the hands of its executives. But that does not mean that Congress will not attempt to micromanage, on delicate issues like the location of new investments and jobs – or when profit goals collide with pressure for US carmakers to produce smaller and more fuel efficient vehicles.

This un-making and re-making of General Motors is not only a massive challenge for the company. It is also a test for President Obama and his more interventionist approach to business. A reborn and thriving GM will show that bigger government is not necessarily worse government. A "new" GM that struggles like the old one will send precisely the opposite message.