The long, painful decline of General Motors started long before Rick Wagoner took the helm, so I’m not sure this will make much difference. But that doesn’t mean he deserved to keep his job:
The Obama administration used the threat of withholding more bailout money to force out General Motors Corp. Chief Executive Rick Wagoner and administer harsh medicine to Chrysler LLC, marking one of the most dramatic government interventions in private industry since the economic crisis began last year.
The administration’s auto team announced the departure of Mr. Wagoner on Sunday. In a summary of its findings, the task force added that it doesn’t believe Chrysler is viable as a stand-alone company, and suggested that the best chance for success for both GM and Chrysler “may well require utilizing the bankruptcy code in a quick and surgical way.”
The move also indicates that the Treasury Department intends to wade more deeply than most observers expected into the affairs of the country’s largest and oldest car company.
After over a month of analysis, the administration’s auto task force determined that neither company had put forward viable plans to restructure and survive. The verdict was gloomier for Chrysler. The government said it would provide Chrysler with capital for 30 days to cut a workable arrangement with Fiat SpA, the Italian auto maker that has a tentative alliance with Chrysler.
Administration officials made it clear that an expedited and heavily supervised bankruptcy reorganization was still very much a possibility for both companies. One official, speaking of GM, compared such a proceeding to a “quick rinse” that could rid the company of much of its debt and contractual obligations.
The clearest losers appear to be the thousands of bondholders and lenders to both GM and Chrysler. In both cases, administration officials said that the companies were burdened by inordinate amounts of debt that would have to be scrubbed. Chrysler’s survival, the administration said, would require “extinguishing the vast majority” of the company’s secured debt and all of its unsecured debt and equity.
To assure consumers reluctant to buy GM or Chrysler cars, the government plans to take the unusual step of guaranteeing all warrantees on new cars from either company. These guarantees would lapse back to the companies once they return to health.
That last step is essential, if anyone is going to buy a vehicle from a bankrupt American automaker. I wish bankruptcy had been considered before the American government started shoveling billions of dollars into GM and Chrysler, but better late than never.
Robert Farago, at The Truth About Cars, is as charitable toward Wagoner as longtime readers would expect:
…There is no need nor room for debate about Wagoner’s negative impact on the artist formerly known as the world’s largest automaker. By any objective metric—market share, profitability, share price, capitalization, anything—Wagoner’s tenure at the top was an abject, epic failure. In fact, I pronounced Wagoner R.I.P. three years ago, in March 2006. I said it then, I’ll say it now: it’s too late to save General Motors. General George S. Patton himself could rise up from the dead, slap a few of Wagoner’s soldiers, assume command and fail. All Wagoner’s replacement can do, indeed should do, is prepare the automaker for bankruptcy.
Wagoner leaves GM buried [barely] alive under a Himalayan mountain of debt, much of it his creation (under the guise of lowering operating costs). The company which once held the title as the world’s most profitable corporation now carries some $46.5B worth of debt. President Obama could add 20 or 30 or even 50 billion dollars in “loans” for GM tomorrow. He could force a 100 percent debt-for-equity swap for ten cents on the dollar amongst GM’s bondholders. He could dictate that the United Auto Workers accept stock in lieu of ANY contribution to its Mother of All Health Care Funds. And it still wouldn’t be enough to extricate General Motors from its current predicament.
GM has been and will continue to be an over-dealered, under-funded mess. Its brands are a complete disaster. Even the brands with some remaining psychological equity—Chevrolet and Cadillac chief amongst them—are suffering from bailout backlash as Americans grow angry at the increasingly obvious black hole that is Bailout Nation. With a handful of notable exceptions (mainly because they ARE exceptions), GM’s products are not competitive. And, lest we forget, the U.S. new car market is still contracting violently, with millions of unsold units just waiting for their makers to give up, sell them at any price and further depress sales and profits. In short, GM currently has zero opportunity for relative or absolute growth.