Monday, March 30, 2009

Wagoner Steps Down and Obama Grants GM/Chrysler More Time

Over the weekend, the announcement came that Rick Wagoner, CEO of General Motors, was stepping down amid government pressure. Apparently, Washington wasn't too thrilled with the reorganization plans for either GM or Chrysler. President Obama spoke regarding the restructuring plans for the companies that fell short of expectations:

And so today I'm announcing that my administration will offer GM and Chrysler a limited additional period of time to work with creditors, unions, and other stakeholders to fundamentally restructure in a way that would justify an investment of additional taxpayer dollars. During this period they must produce plans that would give the American people confidence in their long-term prospects for success.

Obama's speech:

So, do we know what is really needed to save the U.S. auto industry? Clearly, Obama is committed to companies standing on their own, "not as wards of the State." I am all for forcing companies to make difficult decisions. But, there is a bit of a double standard here that we've noted here before (Power of the Sequel: TARP II). My larger concern is not the ousting of Wagoner, perhaps that is overdue and new leadership may help push change forward. But, wouldn't the same be true over at some of the banks? Edward Liddy assumed the helm over at troubled AIG at the request of former Treasury Secretary Hank Paulson, but there has not been much movement in management over at the banks that are in the worst trouble. The same accountability to which Wagoner is held should mandate changes in management at some (though clearly not all) of the banks that took TARP monies.
Thankfully, President Obama noted that some of the trouble in the auto industry is the economy as a whole. People just aren't buying cars right now. Even if the auto industry was in better shape, it would be hurting due to the poor economy overall. Auto sales for the first two weeks of March 2009 were down a whopping 40%! As Obama noted, he cannot promise that there is not "more difficulty to come." GM seems most likely headed toward bankruptcy unless something changes (not sure what that would be). Whether the government will pitch in for Chrysler seems to depend on whether a "marriage" can be made with Fiat. The government is certainly looking for dramatic changes from the auto sector. Modest reform will not be enough. While how that is accomplished is unknown, it is hard to disagree that substantial change is in order.



Ju said...

OMG! Fights are breaking out over Michigan in response to layoffs spurned by Obama's choice for bankruptcy above all other options. Watch fight video:

Anonymous said...

What is the advantage to the taxpayer of firing the heads, or for that matter the entire C-suite, of the financial services TARP recipients? Does that make stabilization of those businesses more likely or just throw red meat to the populist masses screaming for vengeance?

A manufacturing business' revenue generator is the brand and the physical assets- labor is fungible (which is why it's organized). In a financial services business the revenue generator walks out the door every night. "Fire them!" shouts the mob, thrusting their pitchforks and stale baguettes skyward. Fire them indeed, but who will stick around to unwind TRILLIONS of dollars in notional principal amount of trades?

There's a time for punishment and a time for reform. At present, it's time to FIX the problem.

Mario said...

I too found it quite intersting that the government was very quick to remove Wagoner from his post, but yet continues to allow the banks to operate mostly business as usual. There certainly seems to be a double standard among how the money is given out. Admittedly each of the auto manufacturers has problems and some new leadership might be beneficial, but at the same time (and this holds true for the banks receiving TARP money) perhaps in the middle of the restructuring is not the best time for such high level changes. It appears to be too late for Wagoner, but hopefully in the future decisions will be more fairly handed down.

Reaganite Republican Resistance said...

Although he seems to think he's the nation's CEO now, with Obama's management experience he couldn't get hired to run a muffler shop.

And firing the head of General Motors must be quite a coup for a power-mad narcissist like Barack- what a rush, man. His Marxist-professor mentors would have been so proud. But, it's costing GM $20M to let Wagoner go, and with dubious benefit- which is now on the taxpayer's tab, of course.

Barack Obama making business decisions and deciding who keeps their job and who doesn't is a very bad idea... he doesn't know anything about capitalism- except for that he doesn't like it very much.