Of all the ham-fisted, meddlesome moments in recent government interventionist history, the ouster of General Motors Chairman and CEO Rick Wagoner is perhaps the most unceremonious and unabashedly direct imposition of federal will on corporate governance.
And it was long overdue.
The most outrageous part of all of this is that the government had to do the dirty work for GM’s board, which repeatedly backed Wagoner until the very end. The writing was on the wall, considering the performance of the century-old automaker since Wagoner became CEO in 2000 and chairman in 2003.
For the Obama administration, change was clearly not coming fast enough. They grew tired of waiting for Wagoner and the GM board to get into gear. So they switched drivers, like a Nascar owner changing up a losing team.
So Rick Wagoner is out at General Motors, at the request of the Obama administration. I’ve never known quite to make of the guy—most of GM’s many troubles aren’t his doing at all, but he had eight years to resolve them and came nowhere close to succeeding. I went to Alex Taylor’s November 25 Fortune cover story on GM to see what more I could learn about Wagoner. Turns out Alex kind of likes him, but he did come up with this:
Wagoner’s biggest flaw may be that he has been too forgiving. Here is a company that has lost more than $72 billion in the past four years, and yet you can count on one hand the number of executives who have been reassigned or lost their job. After spending $1 billion to shut down Oldsmobile, Wagoner has allowed GM’s other weak divisions to live on despite their fading resonance in the marketplace. (A competitor says Wagoner is “too fundamentally decent” to cut off dealerships and put their employees on the street. GM says closing divisions isn’t cost-effective.)
What this decision means, I think, is that the Obama auto team doesn’t believe GM can survive in anything remotely like its present form. Wagoner’s whole career was about trying to preserve GM in something like its present form. So much for that.
In GM’s case, the primary (though hardly only) obstacle to re-negotiating contracts is a standoff between the bondholders and unions. Each side has dug in its heels, refusing to make further concessions until the other one does. And while I haven’t done much independent reporting on this, the emerging consensus seems to hold that the union is a lot more willing to compromise than the bondholders are.
Among those who have criticized the bondholders is Steven Rattner, head of the administration’s automobile task force. “I think bondholders are being quite difficult,” Rattner told the Detroit Free Press. “I’ve been in many difficult discussions with bondholders and this one is certainly right up there.”
It will be interesting to see whether Obama or his advisers push the bondholders (or the unions) harder on Monday.
Jeremy Anwyl, chief executive of the automotive Web site Edmunds.com, called the move “political theatre” to appease an increasingly bailout-weary public.
“American taxpayers are not happy,” Mr. Anwyl said. “But this way you’re able to point to Rick and say he’s gone, and that creates an environment where the loans become politically palatable.”
The White House says neither GM nor Chrysler submitted acceptable plans to receive more bailout money, setting the stage for a crisis in Detroit and putting in motion what could be the final two months of two American auto giants.
The Obama administration, however, has decided not to require the automakers to immediately repay government loan money they previously received, since that would force both companies into Chapter 11 bankruptcy.
A senior administration official said, “calling in the loans would not be a productive exercise for the American taxpayer since the companies don’t have the money [to repay the loans] and it would simply put the companies into uncontrolled Chapter 11.”
In an interview Obama said the companies must do more to receive additional financial aid from the government.
“We think we can have a successful U.S. auto industry. But it’s got to be one that’s realistically designed to weather this storm and to emerge—at the other end—much more lean, mean and competitive than it currently is,” Obama said.
Instead, the administration has decided to give Chrysler 30 days to work out a deal with Fiat and GM 60 days to come up with a new restructuring plan. Both companies will be provided with “some working capital” during those time periods.
A senior official said, “bankruptcy is not the goal,” although there may be a “role for a court supervised process to effect the restructuring… different from Chapter 11.”
Wagoner confirmed this morning that he stepped down after the Obama administration threatened to withhold more bailout money for the struggling US carmaker. He has been replaced by Fritz Henderson, the company’s chief operating officer.
“On Friday I was in Washington for a meeting with administration officials,” said Wagoner. “In the course of that meeting, they requested that I ‘step aside’ as CEO of GM, and so I have.”
Wagoner’s departure comes as Obama is set to announce further actions to restructure GM and Chrysler later today.
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