Obama Forces Out GM Chief
30 March 2009 8:53 am by Taylor Marsh
This isn’t our parents’ capitalism:
The White House’s insistence that Wagoner step down is an extraordinary intervention of the federal government into the management of a private company. A senior administration official said Wagoner’s resignation was required because the company needs a “clean sheet.”
“We felt that having a change of leadership would be consistent with the clean-sheet approach,” said the official, who spoke on condition of anonymity because of the sensitivity of the matter. [...]
“Clean-sheet approach” or not, the government is now in the American car business more than ever. Anyone else find this sobering?
“Sobering” is not the word. I find it terrifying. Frankly, I’m disgusted with this “hybrid capitalism” approach, and I think it only gets worse from here.
However, this is the natural outgrowth of a strategy that insists that domestic car companies be kept in business at all costs. Having extended these companies obscene amounts of money, then — pardon the term — we’re already “half pregnant.”
I was against the auto bailout. Unlike financial companies, where the crisis is one of liquidity, the domestic car companies are in trouble because not enough people are willing to buy their cars. So I was on the side of those who said the car companies should restructure first, and then seek government assistance once they demonstrated viability. But we put the cart before the horse, and “lent” them the money on the condition that they prove viability later.
Now the government is admitting that the car companies are probably not viable. Unfortunately, the money we “lent” is long gone. Obama can fire Wagoner all he wants, but it’s largely ceremonial. The car companies are zombies, and it’s time to let them fail already.
We once had a Republican Governor who proudly and consistently insisted that we needed to “run gub’ment like a bid’ness.” I think the “big bidness” folks have done enough while unleashed and unchecked.
Well, I’ll stick with sobering, because they should have gone bankrupt to begin with, which would have demanded restructuring through means already available without the government stepping in. That’s what you’re in essence saying, ogenec, when you say they should have had to restructure first.
I also believe the U.S. needs the big automakers, but not through the current way we’re headed.
Trouble is that government is not a business, nor should it be.
TO ADD… Got a copy of Obama’s remarks he’s about to deliver. It’s embargoed, so I’ll just offer one sentence, which shouldn’t ruffle anyone’s feathers: That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger. Should have been done in the first place.
first thought: what about Liddy at AIG? why is he still there if the WH is in the business of firing?
and i’d just like to put my name in the hat for a small business loan from the government with this kind of stipulation. cripes.
…regarding ogenec’s “But we put the cart before the horse, and “lent” them the money on the condition that they prove viability later.”
Sobering is a good word. Appalling is another. Come on — government has no business being in the car business. There’s more word that there’s an entire program now in place for the government to back warranties for cars purchased during this “restructuring.”
Frankly, let’s let government be paying attention to government, including the damn deficit that’s getting bigger and bigger and that Obama wants to make even bigger by expanding government’s role even further. This is utter madness.
I forgot to mention — why the tough love with automakers and not with Wall Street?
On the deficit, in a econ symposium last week none of the people there were worried about the deficit, all believing as long as the ballooning of it is short-term. That’s the key point they made. Laura Tyson said the U.S. could handle up to $10 trillion SHORT-TERM. That’s sobering.
Because Wall Street loans to main street, which makes the global world go ’round?
I think it’s a tough call. Unlike an airline, for example, who is going to buy a car from a company in bankruptcy? On the other hand, don’t we need to retain such a strategic heavy manufacturing industry?
I am not at all worried about the Gov’mnt forcing out one of the fools that have helped create this debacle.
I don’t have any problem with the Gov’mnt having a say over the milage that GM cars will have to achieve. WOW! What would happen ya think if a MERican car company actually offered a stylish vehicle that was a hybrid that got 40 to 60 MPG? Or even an electric? FOR A FAIR PRICE!!!!
What? Do you think the Gov’mnt, especially THIS Gov’mnt can do any WORSE then the rich old white guys have?!!!
In a word, justlen, yes.
“For a fair price” means that unions have to make deep, deep concessions. Developing…
Ummm, how exactly did Wagoner help create this debacle? Yes, GM has lost money, but industry consensus is that he has avoided even heavier losses: GM’s new cars like the Volt should earn back market share, and they have made impressive strides in expanding into foreign markets.
Here’s why “terrified” works better for me. I don’t know where this ends. The WSJ is reporting that the government intends to set salaries etc. for all financial firms, not just those that received TARP money. That is economics by fiat, by the dictate of the state. Which in turn sounds like just Venezuela or any other banana republic that can nationalize its industries and kick ownership out at its whim.
We are trying to ENCOURAGE private investors to come out from the shadows and put their money at risk again. Which is why i applauded the geithner plan. But this level of intervention is going to cause private investors to take their ball and go home. As I write this, this Dow is down almost 300 points.
We cannot afford this. Again, the government has no business being in the sandbox. Regulate it, make it safe, and then get the heck out of the way.
Sobering and a little scary. I’m not going to fault Obama for getting involved or trying to keep the companies out of bankruptcy court. Extraordinary times, extraordinary measures.
It looks like the administration is going to let Chrysler go under. If we want a 21st Century economy, painful changes like these are necessary.
Here’s the answer to Beth’s question about Motown vs. Wall Street. By and large, banks are in trouble because of a cash crunch: estimates of their assets are unreasonably low, which forces them to raise capital to shore up their capital base. But the very fact of having to raise additional money causes the market to knock down their asset value even further, which puts additional demands on their cash requirements. It’s a vicious cycle, and ironic because if they could hold these assets to maturity, the banks would make a lot of money. Geithner’s plan addresses this imbalance:
The car companies also have a cash crunch. Part of that is credit drying up. But most of it is that Detroit is making cars not many people want to buy. It’s a demand problem, not a liquidity problem. So unless the government is going to mandate that we all buy American cars (and that day may not be that far off, the way things are going), these companies are almost certainly dead firms walking. They should file Chapter 11 and those that survive (I think GM will, in a much smaller form), will be better for it. So will the country.
sorry, forgot the link to Samuelson’s op-ed about the Geithner plan: http://www.washingtonpost.com/wp-dyn/content/article/2009/03/29/AR2009032901354.html?hpid=opinionsbox1
ogenec—I agree with you to a point. From what I’ve read, going into bankruptcy could hurt GM’s sales even more. If the government can force the same reorganization and GM can avoid bankruptcy, I don’t have a problem with more loans, especially after the money we’ve dumped into Wall Street.
One of the problem I see with Obama and his administration is that they are too weary of coming out and clearly stating what his policies, positions, goals on various issues are, because he wants to keep open the option of backtracking if a chosen course does not work without being too fiercely attacked. This is great for flexibility and responsiveness/awareness to events, but as Ogenec points out, it creates uncertainty and in these troubled times spooks everyone. It looks like at the moment he is having to make decisions that go contrary to his instincts (against nationalisation and government involvement in business) because he considers that stakes are too high or that the use of public fund require such intervention. I think it would greatly help if he came out with what looks like a plan/roadmap/policy or clear and coherent explanation to all stakeholders (taxpayers, shareholders, creditors, managers, employees…) under what conditions, to what extent, in what sector the government will intervene. People might not like it, but at least we will all have a clearer idea of where we are heading. The markets reacted very positively to the Geithner plan, to a great extent because it was a plan (however confusing) and everyone had more sense that they knew where things were going.
That said I am not sure that his recent decision is a bad thing. Maybe in extraordinary times, the government has to act as a majority investor with a say in all aspect of the governance of companies that it has bailed-out or that it considers systemically important. I don’t think I have an issue with that as long as it is not permanent and that as they are also seriously thinking of an exit strategy. But if that is the plan, it would be good for the administration to just come out and say so.
Wait a minute here. If the American people had wanted to buy small economical cars that got good gas mileage I’m sure American car companies would have been happy to mass produce them. No we wanted big trucks and SUVs. Are they supposed to be social engineers too?
As for their union workers making big concessions why? It has come to light that non union car workers working for the Japanese in the South are making a smidgen more now.
What I find sobering is the huge difference between how the finance sector is being coddled and the industry sector is being brutalized.
What has made this country strong in the past? A strong middle class and unions. I fear we already are a banana republic and the elites are winning.
As for lending,all the small local banks and regional banks who did not participate in the high level thievery are doing fine and they are lending.People are not buying cars and houses because they are tapped out after years of stagnant wages,now they have a severe reduction in the worth of their main asset, their homes or they have already made huge concessions in wages and benefits or they have lost their jobs.
Granholm said this morning, on Morning Joe that the problems the car companies are having with restructuring is that their bondholders refuse to take a haircut.Bondholders are part of the problem with the zombie banks too.The elites are not giving an inch.
I can’t see what else he could have done at this point. He knows that they need more bailout money, and he also know people are not going for another auto bailout, without….the CEO being forced out.
At least this way the warranties will still be enforced and maybe, just maybe we can get some cars made that will actually run efficiently, reduce our dependency on foreign oil and be better for the planet.
If we had let them go into bankruptcy and restructure, who here thinks they would have ‘really’ changed course dramatically and done the right thing? If the consumers are only offered fuel efficient and electric cars, guess what? They will have to buy them.
I don’t blame the workers in Detroit, but the management jugheads that knew this day was coming back when Jimmy Carter was our President.
Breaking: Chrysler and Fiat reach agreement with help of US Treasury.
AMAZING what can happen when you get an ultimatum.
Audie…..I’m not defending the managers of the car companies but isn’t it their job to give the consumer what they want not to convince people to change their habits? Seems to me that that would be a function of government to change the incentives. Did any of that happen? It could have with a healthy tax on fuel or tax breaks for buying small. Of course that would have taken some political courage.
Lake Lady says:
30 March 2009 at 12:55 pm
In this case, the government and the car manufacturers knew that we were using more oil/gas than we could sustain long term. We have known this since the 70’s. The car companies did it for greed and our elected politicians did it because of the oil/gas lobbyists filling their pockets. Not telling the public was wrong and immoral. They should have been re-educating the public decades ago, and started making cars based on the facts, rather than cars that would make them rich. I think the consumers should get what they want, but at least they should have been honest enough to give the consumers all the information, so they can see the repercussions of their decisions, so they can make an educated choice.
They made American’s think that they ‘needed’ big cars and SUV’s as a symbol of success. It was a marketing campaign, pure and simple. If we were all driving electric and smart cars eight years ago, and didn’t need the oil, I can guarantee you we would not have gone to war with Iraq (for the oil). That is why I call this whole thing immoral, and we deserved better.
The issue isn’t about the big three making big cars vs. small cars. It’s their complacency. They have resisted innovation and continual product improvement every step of the way. They have done nothing to improve the safety and efficiency of their product unless they were forced to. They were busy concentrating on cupholder wars.
The reason the Japanese wiped the floor with them is because those companies strived for continual improvement. Many of these companies have environmental policies built into their very charters and management plans.
I forget the brand, but didn’t one Japanese manufacturer recently build a plant in Indiana that has zero waste emissions?
Justlen …you make my point. The Japanese government built in those environmental policies.
Where I fault American car designers is the planned obsolescence. The damn things just started falling apart. I have bought Toyotas for years because of their dependability.The improved gas mileage was a perk.
Conrad is on MSNBC talking about Obama’s budget has to be deficit neutral…how is that going to work?
The Japanese government didn’t put in those policies. The Japanese companies have it in their DNA. I can cite numerous instances where my company made environmental improvements to our products without any profit incentive or regulation. It’s in our mission statement.
Statistically, the US cars are on a par with the Japanese these days. My point is they only improved build quality because they HAD to. If it wasn’t for the Japanese entry into the US market we’d still be making sure we didn’t buy a car assembled on a Monday or Friday.
That is interesting to learn justlen. How do we get it in our DNA? Maybe if we stopped glorifying greed.Do you think it is a built in social responsibility or because they live in a limited space?
It’s because we live in a country that values:
-Short term gain. We’ve got a 10 year plan, I’d like to find an American company that has one and isn’t focused on quarterly earnings.
-Consumers that value nothing but cost. We don’t value value. Rail WalMart all we want, but the average American buys their $50 DVD player there. They neglect to notice the reason it’s $50 is because the manufacturer built a shitty DVD player to hit that price point.
Lake Lady says:
30 March 2009 at 1:31 pm
I think a lot of it is cultural. A high value on natural beauty, and a horrific war. Godzilla wasn’t about monsters. It was about the environment. And the US.
I know…you are so right. Things bought a WalMart have a short life span. I remember reading that Snapper refused to become a supplier for them because they would not make a low quality lawn mower.
Lake Lady says:
30 March 2009 at 1:41 pm
You are exactly right. We were going to buy a Snapper for that very reason. Ended up buying a Brill electric mower.
A few responses:
Lake Lady says:
30 March 2009 at 12:55 pm
Audie…..I’m not defending the managers of the car companies but isn’t it their job to give the consumer what they want not to convince people to change their habits?
SUV’s were developed by the auto companies for big profits. They are built on light truck frames (pick up trucks) and are not covered by the requirement of higher gas mileage and safety standards that were introduced years ago.
Passenger cars (mini vans, cars) had much higher mileage requirements and higher safety standards and LOWER profit margins.
This is why the advertising to support SUV’s. Do people buy what that want? How did they know they wanted SUV’s with 8mpg before Detroit developed and marketed these?
Regarding Japanese quality/DNA – in the 1950’s and 60’s, W. Edwards Deming – the original GURU for total quality tried to get Detroit to listen to his ideas. He was ignored, but not by the Japanese who were hungry to improve and update and modernize their factories.
Short term profits trumped long term investment.
The Japanese have proven that you can make both a high quality product/plan for the future AND make a profit. Most execs in the us are primarily concerned with their own profit.
Sorry if it’s not clear:
first paragraph is a quote from Lake Lady 12:55.
The rest is mine not hers!
Don’t forget the cars built on light truck frames don’t have to meet auto emissions standards either.
GM is not a “private company”
“first thought: what about Liddy at AIG? why is he still there if the WH is in the business of firing?”
Liddy came out of retirement to help run AIG for $1 a year at the request of the Bush administration.
If Wagoner had not gone, everyone would be screaming about the fact that he was not fired.
The President is trying to save an industry that directly and indirectly employs tons of Americans. Japan is helping keep its care companies in business. Until we get changes in health care American companies will always be at a disadvantage.
Many, but not all of the wallstreet guys who caused our problems are no longer working at the companies they ruined.
Wagoner’s replacement has a Harvard MBA.
George W. Bush has amply demonstrated the management skills conveyed by a Harvard MBA.
Bye, bye GM.
doppich says:
30 March 2009 at 6:52 pm
Wagoner’s replacement has a Harvard MBA.
George W. Bush has amply demonstrated the management skills conveyed by a Harvard MBA.
Bye, bye GM.
___
Yeah ALL Harvard MBA’s are incompetent because Bush went there.
“Lake Lady says:
30 March 2009 at 12:21 pm
Wait a minute here. If the American people had wanted to buy small economical cars that got good gas mileage I’m sure American car companies would have been happy to mass produce them. No we wanted big trucks and SUVs. Are they supposed to be social engineers too? ”
Nonsense…to a point. The SUVs were rammed down the American throats with a well crafted, well researched PR tsunami.
Unfortunately we ARE a nation of narcissitic sheep.
Remember the car commercial that went “You’re at a stop lighr for thirty seconds. In that thirty seconds what kind of impression do you want to leave?” A more sane question would be WHY would you care what someone at a stop lighr thinks of you or your vehicle.
With gas going up again, if GM had a line of stylish,sporty and utilitarian hybrids and electrics(provoded you had a place to juice up) ready to go they would clean the other car manufacturers clocks, world wide.