Nationalizing General Motors

Today, General Motor faces the inevitable, a bankruptcy filing that will "temporarily nationalize the onetime icon of American capitalism," the New York Times writes, with the rest of the business press leading off its coverage this morning with the historic news as well. Uncle Sam will take a 60 percent ownership stake of GM (GM) while the company downsizes, restructures, and re-emerges to a very uncertain future. Washington is still sounding hopeful. "Mr. Obama plans to tell the nation on Monday that he believes GM can be brought back from the brink of insolvency, even if the company looks almost nothing like the titan of old," the NYT writes. The Wall Street Journal is not so sure, calling GM's Chapter 11 filing "a high-stakes gamble for U.S. taxpayers." The challenges are many, ranging from lingering legal issues to nasty politics on Capitol Hill to weak consumer demand for new autos. And then there's the matter of Washington being on uncertain terrain running an automaker. "Even if a new GM emerges swiftly from bankruptcy, the administration will face a thicket of challenges, including closing more than a dozen factories and shedding the Pontiac, Saturn, Saab and Hummer brands," the WSJ writes.

If there is a ray of hope, it comes from Chrysler, which appears to have emerged late on Sunday from its own Treasury-backed bankruptcy plan. According to Reuters, a bankruptcy judge cleared the sale of Chrysler's assets to Fiat. "Chrysler's bankruptcy, also financed by the U.S. Treasury, has been widely seen as a test run for the much bigger and more complex reorganization of GM," Reuters writes. Meanwhile, Ford is looking to cash in on its rivals' woes. According to the WSJ, Ford plans to increase production of cars and trucks in the third quarter by about 10 percent from the level of a year ago. "It will be Ford's first significant production increase in almost two years," the newspaper writes. An opportunistic source inside Ford (F) tells the WSJ, "This is a once-in-a-lifetime opportunity to separate us from our other domestic competitors."

Increasing automobile production is indeed bold when you consider demand for new cars is still at rock bottom. According to a Reuters poll of analysts, U.S. auto sales in May will be weak yet again, reaching no higher than 9.4 million units, "a slight increase from April, but far below the 14.3 million unit rate a year earlier." Just four years ago, monthly auto sales topped 17 million units.

There's little relief in sight for motorists who thought cheap gasoline would be here to stay. On Monday morning, the price of crude oil hit a seven-month high, topping $67 a barrel, thanks to Chinese factory output increasing for its third consecutive month, Bloomberg reports. Back home, the price of gas has now risen 33 straight days to top $2.50 a gallon, reports CNNMoney.com. The average price of a gallon of gasoline has risen 50 percent so far this year (and 20 percent in May)—just in time for summer vacations. 

We head to China now, where Treasury Secretary Timothy Geithner this morning told his hosts that the Obama administration will rein in its swelling budget gap ... once the recovery takes hold. According to Bloomberg, Geithner laid out guidelines, saying the United States would prefer to stick with a deficit of "roughly 3 percent GDP." This year it is staring at a deficit more than four times as large. The Chinese have become jittery of late, as the U.S. deficit grows and the dollar continues to shrink in value on the global market. China, of course, is the largest holder of U.S. government debt. According to Dow Jones Newswire, Geithner reassured the Chinese that their U.S. dollar assets are "very safe."

And finally, a Flanders to run Playboy? The WSJ reports this morning that the title that Hef built is about to hand over controls to Scott Flanders, who now heads Freedom Communications Inc., which counts the Orange County Register among its media assets. "After a couple of recent visits to the Playboy Mansion, Mr. Flanders has emerged as the clear favorite," the newspaper writes, citing people in the know. The rumored move comes as speculation mounts that Playboy has approached private-equity firms recently as it investigated a possible sale. It is unclear whether Flanders would be the man to push through such a sale, the newspaper reports.