Economic Outlook: Driving a public car

The United Auto Workers’ deal with General Motors Corp. opens the door for U.S. government control of the company, industry analysts said.

The previous option left the union with 39 percent of a restructured GM, but the option rank and file will vote on Wednesday gives the union 17.5 percent, which allows for a vastly different outcomes for both the government and creditors, The New York Times reported Wednesday.

The likely outcome is the government would end up with 70 percent of GM, up from a previous 50 percent, the Times said.

While the government’s control escalates, a broad swath of decision-making will also be seen through a potential conflict of interest. Everything from hiring decisions to fuel emission standards to dividend payments will have divided goals, as the government seeks to return GM to a profitable enterprise and protect public interests simultaneously.

So far, the government has vowed to be a hands-off automaker, allowing industry professionals to run the show. No one is going to put U.S. government employees on the GM board, a source close the negotiations told the Times.

But political pressure will likely escalate as well, as the company makes critical decisions on which plants and dealerships to close and which to keep open, the newspaper said.

U.S. markets, meanwhile, led a global bounce Tuesday that overlooked GM’s distress and falling home prices, which tumbled in 17 of 20 major U.S. cities in March.

The 20-city S&P/Case-Schiller composite index fell 18.7 percent from a year ago with prices in 15 of 20 cities down more than 10 percent since March 2008.

Investors will look at existing home sales Wednesday, which have dropped below an annual rate of 6 million since June 2007 and below 5 million in five of the last seven months.

Markets appeared to shrug off the fundamentals Tuesday. Oil prices have risen more than $10 per barrel in the past month, but U.S. consumer confidence has also bounced for two consecutive months, which shook markets out of a slump.

On Tuesday, the Dow Jones industrial average gained 196 points, or 2.37 percent. The S&P index gained 2.63 percent.

Asian markets followed suit. The Nikkei average in Japan gained 1.37 percent Wednesday. The Hang Seng index in Hong Kong soared 5.26 percent. The Singapore Straits Times jumped 3.01 percent, while the S&P/ASX in Australia gained 0.34 percent.

In midday trading in Europe, stocks traded with narrow gains. The FTSE 100 in London fell 0.02 percent, while the DAX 30 in Frankfurt gained 0.05 percent. The CAC 40 in Paris rose 0.39 percent, while the broader DJStoxx 600 gained 0.41 percent.