The Politico is reporting today that President Obama (or “the Administration”) has requested that GM CEO Rick Wagoner resign in order to qualify for the next round of government loans.
The Obama administration asked Rick Wagoner, the chairman and CEO of General Motors, to step down and he agreed, a White House official said.
On Monday, President Barack Obama is to unveil his plans for the auto industry, including a response to a request for additional funds by GM and Chrysler. The plan is based on recommendations from the Presidential Task Force on the Auto Industry, headed by the Treasury Department.
The White House confirmed Wagoner was leaving at the government’s behest after The Associated Press reported his immediate departure, without giving a reason.
On one hand this is GM’s fault. They should not have been going to the government, hat in hand, to beg for money. When you have to get money of this amount, the lender is going to set the conditions for which they will make the loan. If that means replacing the CEO, then so be it.
On the other hand, it is pure audacity that would cause the government–particularly the Treasury Department–to decide that they know any better than the GM Board of Directors who should be running the company.
This is awful news. Now we have the government not only bailing out companies and industries, but we have them making key business decisions. This is just dipping their toes in the water. Every day seems to be bringing us more news of the Obama Administration becoming more “Statist” (or insert your other totalitarian, large, controlling government term here).
Updates below the fold (2nd update 12:15pm)
UPDATE 3/30/09
The NY Post is reporting today that GM’s (and Chrysler’s) turn around plans have been rejected by the Administration. The government is giving GM 60 days worth of operating capital to put together a new plan under new management (i.e. that was the government’s requirement for Wagoner to go). Chrysler has been given 30 days of operating capital to finish a deal with Fiat or they are cut off. Boy, I bet the negotiators for Fiat are smiling this morning.
At RedState, Francis Cianfrocca (with whom I disagree with a lot, but who generally gets the facts and predictions fairly accurate) is predicting that this is paving the way for a GM to declare bankruptcy as Wagoner was the one who has been consistently ruling that out as an option. He suggests that the government is about to pick up the warranties for GM (and probably Chrysler). He also suggests a major “reorganization” shortly with a “new” GM that will focus on the things that Obama wants to focus on (like electric cars).
GM closed at 3.62 a share last Friday. It is down to 2.85 in pre-market trading. We are probably in for a bumpy ride today.
UPDATE 3/30/09 12:15 pm
President Obama has made his public announcements regarding GM and Chrysler.
In this context, my administration will offer General Motors adequate working capital over the next 60 days. During this time, my team will be working closely with GM to produce a better business plan.
They must ask themselves: have they consolidated enough unprofitable brands? Have they cleaned up their balance sheets or are they still saddled with so much debt that they can’t make future investments? And above all, have they created a credible model for how to not only survive, but succeed in this competitive global market?
First, what does the President (or anyone in his administration) know about creating a business plan? Second, the groundwork is laid for what Cianfrocca suggested that GM is headed for bankruptcy: “are they still saddled with so much debt that they can’t make future investments?”
Regarding both company’s warranties:
In fact, it will be safer than it’s ever been. Because starting today, the United States government will stand behind your warrantee.
Finally, we now have the car czar:
I am designating a new Director of Recovery for Auto Communities and Workers to cut through red tape and ensure that the full resources of our federal government are leveraged to assist the workers, communities, and regions that rely on our auto industry.
Yoiks.
Something striking me as interesting is how quiet Ford is being in this mess. To my knowledge, Ford has NOT taken the bailout funds. However the thought of the government having a day to day operation decision power of General Motors should be a shuddering thought if you’re Ford Motor Company.
Could we see a government led merger of GM and Chrysler into a GSE leaving Ford squeezed out?
Chevrolet: The New Trabant for the 21st Century
Michael is exactly right. Imagine if you were trying hard to do everything right and struggle against the financial tide while government comes along and bails out (or creates GSEs) of your competitors?
If you’re the Japanese you shudder as well as you’ve come to America in good faith and with the belief that there was little political risk in a capitalist country, beat your competitors hands down and then had them propped back up by government. So much for capitalism’s “creative destruction” concept.
Of course, GM and Chrysler are already offering 0% loans using government provided GMAC money. This is the sort of stuff that libertarians, some conservatives and all Austrian economists rail about, government intervention in the economy, picking winners and losers, preventing markets from operating properly, inducing political risk in the economy, etc…
GM will never survive having gov’t as partner Sean. Ford may be the only survivor here in the states frankly because they had the guts to say no to the handout.
Ford has, so far, stayed out of the bailout business. I read once that they had somewhat predicted the downturn better than GM and Chrysler, and had positioned their loans/cash so that they would be able to better withstand the downturn. The problem for them becomes how LONG is the downturn. If it continues past the end of 2009, will they still be in the same situation?
Of course, they will have the advantage of seeing what is going on with GM and Chrysler and be able to make the decision between bankruptcy/reorganization and bailout. With this news, you have to think that the reorg route is looking more favorable if it comes to that.
Ultimately, even Ford is going to need to get out of the union contracts to do things right. What they will be seeing in the next few days (maybe today) is if the government takeover is going to help that or not. My guess is that the government is about to make paybacks to the unions. My second guess is that the economy will not come back in time for Ford and they will be forced into Reorg. But they will still be in far better shape than GM and Chrysler.
Predictions:
1. Half of GM board of directors will be Obama lackeys within 60 days.
2. By the time 60 days are up there will be a “Automakers Reorganization Bill” in Congress that will provide a bankruptcy type reorganization for any of the automakers. Part of this reorganization will require a certain set of requirements for the product mix of an Automaker. This mix will excessively limit the use of trucks and SUVs and will require a large number of “clean fuel” vehicles (e.g. electric, natural gas, wind?). It will restructure the union agreements so that the union can be said to have “sacrificed”, but the pay scales and the retirement benefits will be retained. The Health Insurance will become a government program.
3. Lest an automaker, such as Ford, want to avoid using the “Automakers Reorganization Bill” the President will move to make good on his threat to make “only clean energy profitable” and enact policies to push the price of gas at least $4/gallon and probably closer to $6/gallon–and simultaneously subsidize the “clean” energy. This would make the sales of gas fleets move toward 0 and put those automakers out of business.
Hopefully I am being wildly pessimistic. But the rhetoric and the direction seems clear.
Here is the wind car:
farm1.static.flickr.com/88/247884990_c070ba46b4.jpg
If you want Ford’s perspective, check out:
http://www.cnn.com/2009/US/03/31/fields.qanda/index.html
My concern is that Ford will ultimately be forced into joining in on the fun by policies that make a traditional can company unprofitable. The President has promised to make companies that he doesn’t like unprofitable. I am guessing that in Obama’s new world order that Ford outside of his reorganization of the industry will apply as a company he likes.
Joel,
While I agree with your idea, Ford does seem to have some momentum in the right direction. For example, the link below says Ford’s overall sales are down. But, Ford’s sales number for the last few months are actually up. Hard for Obama to argue with a company that is actually improving during a recession.
http://money.cnn.com/2009/04/01/news/companies/auto_sales/index.htm
It is NOT hard to argue with a company that is improving during a recession. He does it with “big oil” regularly. When he talks about making only “clean energy is the only profitable energy” he is talking about many profitable companies and industries.
Obama is saying that he wants to put certain businesses out of business. Just because Ford is looking good now (and they actually look very good if the current regulatory environment doesn’t change because they will be destroying GM and Chrysler) does not mean that he will not opt to destroy Ford just because he wants to.
I am not seeing a President who values companies that do things well.
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