U.S. Government forces head of GM to resign

[samclem]

GM CEO Rick Wagoner will announce his resignation tomorrow.
From this article:

The Obama administration used the threat of withholding more bailout money to force out General Motors Corp. Chief Executive Rick Wagoner, marking one of the most dramatic government interventions in private industry since the economic crisis began last year.
. . . Mr. Wagoner was asked to step down on Friday by Steven Rattner, the investment banker picked last month by the the administration to lead the Treasury Department's auto-industry task force. Mr. Rattner broke the news to Mr. Wagoner in person at his office at Treasury, according to an administration official.

The President has said he intends to extract concessions from GM's management, the unions, bondholders, dealers, etc as he puts in place his plan to make these companies profitable. We're lucky to have a president and a team of government experts who can restructure a car company and make it work. Now that they've shaken up the management, hopefully they can also implement some green engineering at the new US Government/GM partnership to build those little, cute, expensive, fuel-cell cars Americans have been clamoring for. The Volt--brilliant!

Ford's decision to try to go it alone looks smart. Still, they'll still have an uphill battle competing with GM and Chrysler which will be receiving huge taxpayer subsidies.

Welcome to Europe.

 

[Nords]

So... what's Wagoner's bonus going to be?

And can he use the private jet for his flight home?

I wonder if Jack Welch wakes up some nights in a cold sweat thinking about how close he came to staying too long at the top of GE.

 

[armor99]

And the masses at the colleseum howl with their approval.....

And when they came for the Christians I said nothing, for I was not a Christian,
and when they came for the Jews I said nothing, for I was not a Jew,
and when they came for ME there was no one left to say anything....

My biggest wish is that people could truly see this for what it is. The govt has completely overstepped it's bounds because the citizens decided to give in to fear. "Grant us the power to do what needs to be done and we will save everyone!!!" I have heard this one before. I have seen where this road leads. I know the arguements, I have read the playbooks, understand the motivations.

Shall I tell you a story of what comes next?

Obviously Ford and other car manufacturers will not be able to compete with a govt backed instituation. So sooner or later Ford and others will go with their hands out to the govt. People will figure well... if the govt did it for GM then they can do it for Ford and everyone else too right?

Where the govt intervenes the free market dies. I wish I saw a way out of this, or a positive in it... but I cannot find any.

 

[RonBoyd]

The Steady Optimist Who Oversaw G.M.’s Decline

And, Mr. Casesa said, Mr. Wagoner’s finance background might have been a poor fit: “The most successful auto companies are run by people who came out of the revenue-generating functions — manufacturing, design, marketing — making cars and selling cars.” Mr. Wagoner, the analyst said, “skipped the whole apprenticeship that most auto C.E.O.’s experience.”

Something true in most companies. The business equivalent of "saving to great wealth." Bean-counters simply don't know how to spend, they are only good at thrift. An impressive example, in any event.

 

[socca]

Another symbolic as opposed to substantive action by the gov't. You can't solve a problem until you've clearly identified it. I haven't heard anything by the gov't that makes me believe they understand the problem. You can, however, throw money at a problem and hope it goes away. I voted for Obama because I hoped for more 'outside-the-box' creative thinking than I'm actually seeing.

 

[OAG]

Looks like a "sales" problem to me. This "problem" or to be PC this "issue" IMHO has never been addressed. Cars and GM in particular are not selling cars. It appears that until GM cars start selling this problem will not go away. Changing the "players" IMO is not going to fix anything. This step (firing the Chairman/CEO) is just IMO another delay of the inevitable - either sell the cars or close the shop.

 

[RonBoyd]

Changing the "players" IMO is not going to fix anything. This step (firing the Chairman/CEO) is just IMO another delay of the inevitable - either sell the cars or close the shop.

Let me repeat: "revenue-generating functions — manufacturing, design, marketing " not from Accounting.

 

[JOHNNIE36]

Great comment just now by Stuart Varney on Fox News. "If they (the government)can fire the CEO of the company, why can't or shouldn't they fire the president of the UAW. The union hasn't given any ground on legacy cost such as health care". Good point. Management took a hit--why shouldn't the union.

 

[Independent]

Great comment just now by Stuart Varney on Fox News. "If they (the government)can fire the CEO of the company, why can't or shouldn't they fire the president of the UAW. The union hasn't given any ground on legacy cost such as health care". Good point. Management took a hit--why shouldn't the union.

I'm not sure where Varney gets his information. Here's a news article on the 2007 contract Big Three-UAW Contracts Even the Playing Field -- Eventually - Auto Observer

This quote refers to concessions prior to 2007. IIRC, these were made by opening an existing contract - a very unusual action.

In 2003, Toyota labor-cost advantage on cars built in the U.S. was roughly $2,500 per vehicle. Earlier concessions on health-care had helped reduce the gap to about $1,400 per vehicle at the beginning of the year, McAlinden says.

This refers to the 2007 contract.

The contract changes could save GM nearly $1,000 per vehicle, or about $4 billion annually in labor costs, McAlinden estimated.

The labor problem has been that the UAW has been playing chicken, assuming they could stretch their concessions out far enough in time to mostly protect current workers. It turns out they miscalculated. So now they are recognizing that they have to advance some of the reductions in the 2007 contract. The argument is about how much.

The United Automobile Workers union said Wednesday that it would make major concessions in its contracts with the three Detroit auto companies to help them lobby Congress for $34 billion in federal aid.

http://www.nytimes.com/2008/12/04/business/04auto.html

The rank-and-file workers always complain about the big pay to execs, and they question decisions they see from the perspective of the shop floor. As far as they're concerned, better management could have avoided the problems entirely.

At this point, I think the issue is the bondholders. GM's bonds have been trading under 30% of par. Even that price is probably supported by the probability of a gov't bailout. But the bondholders seem to also be playing chicken, assuming if they are stubborn enough they'll get full value (which would be a windfall to anyone who purchased recently). Hence, the admin is pushing back by saying they are still open to bankruptcy.

I could be wrong, the public can't see the backroom negotiations, but this is how it seems. At any rate, we'll probably get more details today.

 

[FinanceDude]

Great comment just now by Stuart Varney on Fox News. "If they (the government)can fire the CEO of the company, why can't or shouldn't they fire the president of the UAW. The union hasn't given any ground on legacy cost such as health care". Good point. Management took a hit--why shouldn't the union.

Because without the support of the UAW Obama would not have been elected, so now he "owes them" a favor or two........

 

[ziggy29]

Management took a hit--why shouldn't the union.

That was a rhetorical question, I assume?

 

[FinanceDude]

That was a rhetorical question, I assume?

 

[USK Coastie]

Comrades Comrades, an Old quote, "As GM goes, so goes the nation." I sure do hope that quote is wrong at this time. I wonder what part of the economy our government will try to "fix" next. Whatever it is, sell your shares in it, unless of course its too big to fail

 

[freebird5825]

I'll probably get flamed for this one...but the devil's advocate in me came out.
The headline could just as easily be written...
"GM CEO performance forces US Govt to use taxpayers' money to prevent massive unemployment of American w*rkers"
Go ahead and throw the rotten tomatoes.
I actually wish the GM Board of Directors had performed this action. But since they didn't, somebody had to be the bad guy.

 

[mickeyd]

I wonder if they will be firing the UAW president also, just to even things out?

 

[samclem]

I actually wish the GM Board of Directors had performed this action. But since they didn't, somebody had to be the bad guy.

If the BoD had done it, I'd have no complaint. I don't know if Wagoner is the right guy for the job. But the entity that is supposed to make those calls is the BoD. In fact, it would have been more above board for the government's rep to meet with the BoD and tell them that the administration would support no more loans unless they sacked Wagoner. If I'd been Wagoner, i would have made the government do that rather than resign--to at least demonstrate how the process works and who works for who.

Today, it was reported that the Obama Administration favors bankruptcy as a means to restructure GM and Chrysler. Fine. So do I. We should have started that process months ago (before the election). But why would the government force the head of GM to resign before this process starts? Bankruptcy and restructuring will involve a lot of horsetrading and negotiating between GM management, creditors, equity holders, suppliers, dealers, etc. This move is like the referee at a football game ejecting the quarterback and coach of one of the teams before the coin toss, then pretending it was for the good of the game.

 

[Gumby]

I don't understand those complaining about the big, bad government takeover. This is the raw essence of capitalism at work. The golden rule, if you will -- those who have the gold get to make the rules. The government forked over millions of dollars to GM. Therefore, they now get to make the rules. Any senior secured creditor whose continued extension of credit was absolutely essential to the survival of the business would have had a very good chance of convincing the board to fire Wagoner if the creditor demanded it as a condition of further credit. As a taxpayer, I would expect nothing less for my money.

The government isn't yet paying the union, so they currently don't have the leverage to throw out the head of the UAW.

Personally, I think GM should have filed Chapter 11 in the fall. (In fact, I recall a detailed post about it ). They have just pissed away the emergency money and not improved the situation measurably.

 

[Gumby]

If the BoD had done it, I'd have no complaint. I don't know if Wagoner is the right guy for the job. But the entity that is supposed to make those calls is the BoD. In fact, it would have been more above board for the government's rep to meet with the BoD and tell them that the administration would support no more loans unless they sacked Wagoner. If I'd been Wagoner, i would have made the government do that rather than resign--to at least demonstrate how the process works and who works for who.

Don't you think Wagoner stuck his finger in the air and saw which way the wind was blowing? And don't you think the government spoke with the board members a time or two? Why stand on empty formality?

 

[samclem]

Don't you think Wagoner stuck his finger in the air and saw which way the wind was blowing? And don't you think the government spoke with the board members a time or two? Why stand on empty formality?

I guess I don't see it as empty or a formality. Yes, it is the same result either way (Wagoner is out).

I have no idea whether the government reps spoke with Board members. They probably did.

If the Members of the Board had decided to knuckle under to their new senior partner, I think it is shameful that they didn't give him the news themselves. Wagoner should have had a chance to say his piece and not get an ultimatum from some wet-behind-the-ears I-don't-know-the-car-business-but-I-slept-at-a Holiday-Inn-Express-last-night government functionary.

 

[Gumby]

And the masses at the colleseum howl with their approval.....

And when they came for the Christians I said nothing, for I was not a Christian,
and when they came for the Jews I said nothing, for I was not a Jew,
and when they came for ME there was no one left to say anything....

My biggest wish is that people could truly see this for what it is. The govt has completely overstepped it's bounds because the citizens decided to give in to fear. "Grant us the power to do what needs to be done and we will save everyone!!!" I have heard this one before. I have seen where this road leads. I know the arguements, I have read the playbooks, understand the motivations.

Shall I tell you a story of what comes next?

Obviously Ford and other car manufacturers will not be able to compete with a govt backed instituation. So sooner or later Ford and others will go with their hands out to the govt. People will figure well... if the govt did it for GM then they can do it for Ford and everyone else too right?

Where the govt intervenes the free market dies. I wish I saw a way out of this, or a positive in it... but I cannot find any.

If you insist on quoting Martin Niemoller, at least get it right


First they came for the communists, and I did not speak out--
because I was not a communist;
Then they came for the socialists, and I did not speak out--
because I was not a socialist;
Then they came for the trade unionists, and I did not speak out--
because I was not a trade unionist;
Then they came for the Jews, and I did not speak out--
because I was not a Jew;
Then they came for me--
and there was no one left to speak out for me.


And for the reasons set forth in my other posts, I would say it is completely inapposite in this case.

 

[armor99]

I'll probably get flamed for this one...but the devil's advocate in me came out.
The headline could just as easily be written...
"GM CEO performance forces US Govt to use taxpayers' money to prevent massive unemployment of American w*rkers"
Go ahead and throw the rotten tomatoes.
I actually wish the GM Board of Directors had performed this action. But since they didn't, somebody had to be the bad guy.

No... I will not flame you... I do not believe in doing that like certain others feel the need to here. This is a place to exchange ideas and maybe learn something in the process.

I think your post poses an important question of who is really working for whom? I remember listening tonight to an man on the news that works in a factory that makes bolts. The man has done that job there for 20+ years and knows nothing else. Obviouly he fears for his job, and I can understand that. But that would beg the question.... why did this man not choose to learn how to do anything else in that 20 years. From my own frame of reference (sorry it's the only one I have), I would be terrified to let my skills atrophe to the point that if I lost my job I would be unemployable anywhere else.

I think a GM bankruptcy will be horrible for the country... but I think a bailout will be far worse. I do not think if GM goes bankrupt that there will suddenly be millions unemplyed tomorrow. I think it is far more likely that another auto maker would come in and buy them at fire sale type prices. Some may have to be let go.... but I would think many could continue on there.. if not at the same salary they have now.

This is compared to the current deal where the govt is giving them more money to make some sort of change that no one is really even sure what they are doing, if it will work, etc... etc...

I may be completely wrong.... but I have not heard a compelling argument about how what Obama is doing is not just deferring this problem down another 10 years or so into the future.

 

[haha]

Great comment just now by Stuart Varney on Fox News. "If they (the government)can fire the CEO of the company, why can't or shouldn't they fire the president of the UAW. The union hasn't given any ground on legacy cost such as health care". Good point. Management took a hit--why shouldn't the union.

Where is Obama's support base? Unions, or mamagement of manufacturing industries?

The unions know they have a Daddy in DC. If he lets them down, he is a short-timer.

Ha

 

[Independent]

Where is Obama's support base? Unions, or mamagement of manufacturing industries?

The unions know they have a Daddy in DC. If he lets them down, he is a short-timer.

Ha

I'll agree that union support was a big deal in Michigan and Ohio, two important states. But, it's interesting to note that Obama only got 59% of the union-member votes (compared to 51% of non-union). If you remember that only 12% of the voters were union members, and less than 2% were manufacturing union members, the raw numbers were pretty small.

United States presidential election, 2008 - Wikipedia, the free encyclopedia
Table 3. Union affiliation of employed wage and salary workers by occupation and industry

I think this as much about "supporting the sector" as about "supporting the union". Obama is thinking about all the people who work for suppliers and secondary jobs - they aren't union, and may even resent the unions, but their jobs are dependent on the auto industry.

 

[FinanceDude]

Ford is sitting pretty, no doubt. When the govt makes Chrysler and GM make all sorts of green cars at premium prices that noone wants to buy, Ford can make more "normal" vehicles and make a killing. Plus, this helps Hyundai, Nissan, Honda, and Toyota. For every VOLT sold, There will be several thousand Accords or Camrys sold......

 

[samclem]

I'll agree that union support was a big deal in Michigan and Ohio, two important states. But, it's interesting to note that Obama only got 59% of the union-member votes (compared to 51% of non-union). If you remember that only 12% of the voters were union members, and less than 2% were manufacturing union members, the raw numbers were pretty small.

I think the campaign money from organized labor was far more important than the number of raw votes from their members. Particulalry in the days before President Obama's grass-roots fundraising took off, the union support enabled him to win some vital first battles and gain critical mass. I doubt that he has forgotten this. I think he also knows that he won't be able to count on that same degree of grassroots fervor/love/excitement 3 years from now--the bloom will be off the rose, and we'll be back to machine style politics. He'll need solid support from groups that he has supported--mutual back-scratching. If anything, it will be his opponents running an insurgent campaign.

So, again, why would the government force the resignation of GM's CEO immediately before the bankruptcy proceedings begin?