The chairman and chief executive of General Motors, Rick Wagoner, is resigning, just hours before President Obama was expected to unveil his rescue plans for G.M. and the ailing American auto industry, a person close to the decision said Sunday.
Mr. Wagoner was asked to step down, and agreed to do so, as part of G.M.'s restructuring agreement with the Obama administration, according to an administration official who spoke on condition of anonymity because a formal announcement has not been made yet.
Rick Wagoner is no managerial genius, but I'm not sure this will actually help much. GM is caught in the jaws of its own structural problems--labor costs, yes, but also its corporate culture, its legacy physical plant, and so forth. Perhaps most perniciously, GM is the victim of a brain drain--it's difficult to recruit top talent to a dying firm, especially when it's located in a dying industry.
On the other hand, it can hardly hurt. And the symbolism, both to the taxpayer and the employees, is important. GM can't be given vast sums without some visible sign of serious change. Let's hope the new CEO actually brings some, rather than providing window dressing for a continuation of business as usual.
My initial reading of this is a cynical one. I suspect this is mostly a publicity stunt -- a way for the Obama admin to look tough (on a small matter) before blinking on the big stuff. In particular, I've heard nothing to indicate that the UAW and bond-holders have relaxed their positions. I think they believe (probably correctly) that the Obama admin won't force GM into chapter 11, and given that, they have no reason to budge. My prediction -- the firing of Wagoner will make the new and provide the cover for Obama to send more billions to GM without more concessions from the UAW and bond-holders.
I have no problem with Wagoner getting the boot -- but by itself, I don't think it means much.
This is most definitely a publicity stunt. The public is becoming extremely agitated by the continued bailouts, and the Obama Administration wants to continue shovelling money to the automakers. Having Wagoner's head on a pike was a way to accomplish this. The only real debate was whether or not to demand Nardelli's head, too.
If Wagoner had been out there, campaigning to get rid of the work rules destroying GM, I'd ahve a problem with this.
As it is? He's just part of the problem. I agree with Siocum that getting rid of him won't accomplish anything. But I don't mind seeing him get the shaft.
The President of the United States just interfered with the internal operations of one of the largest corporations and people just shrug.
Is the president a member of the board of GM?
The lender, public or private, always calls the shots...
If GM had gone to Chapter 11 or been taken over by a capital management group, to which end it was most certainly destined, Wagoner would have been the first head on the chopping block. That's what normally happens when the CEO for nine years running, whether by his own fault or not, is unable to turn around a fundamentally unsound business and $30Bn disappears -- poof! -- in the latter four of those years.
Instead, GM begged for and got a nice bailout with few conditions other than promising, really truly honest, not to blow it all on lollipops and fireworks.
Naturally, GM still can't make ends meet, and has returned to Uncle Sam's Magic Money Tree in search of a second round of green duct tape. It's about time some strings got attached, if they are indeed attached, and this is not merely another diversionary tactic that involves doing something while actually doing nothing at all.
If it were venture money and an investor calling for a new CEO, would you even blink at this kind of call?
Frankly, I don't see why any of these guys stay. Feds looking over your shoulder, salary and bonus restrictions, flying coach or driving everywhere - it's torture for a Fortune 500 CEO. I'm as happy to see him go as the next guy, but his leaving as part of the agreement? For him, that's a feature, not a bug.
I agree that Wagoner is in and of himself not vital to the chimera of a GM recovery. I take note of the fact, though, that the occupant of the White House has directly fired the CEO of a major corporation. The last time I looked at the Constitution, private businessmen were not amongst those who serve at the pleasure of the President. There is a precedent here, one that goes along with the ex post facto bill of attainder that put a major dent in the right to have contracts enforced.
I still expect GM to go Tango Uniform. What might bear watching is the investor reaction. If contracts mean nothing based on political pressure, and the internal operations and corporate chain of command of a company is at the whim of the Federal government, without even an illusion of appeal, recourse, or due process; what rational reason would you have to invest in any corporation?
Subotai Bahadur
I believe the correct headline for this post is "Rick Wagoner purged."
This was not a government mandated firing, it was a condition for further help. The absence of these conditions would be the scandalous news.
Personally, I think there should be a non-trivial penalty that will function as a mild deterrent for asking more money. Maybe this is not the ideal one. But still...
Normally I'd agree with you. But if GM didn't want to be told who to hire/fire, they should never have accepted government bailout money. Once that happens, all bets are off and the usual rules of free market capitalism don't apply anymore.
Well I'm glad we've freed up space for one of Obama's cronies to run this miserable jobs program for Dem votes.
"The last time I looked at the Constitution, private businessmen were not amongst those who serve at the pleasure of the President."
Let's take a step back here. GM is free to turn down the money if the board feels so strongly that Wagoner is The Guy. The government is making an offer for money with conditions like any other contract, it is not forcing GM into anything.
Are you advocating that the government should be giving out money to failed business models with no requirements attached?
I don't know what they are advocating, but I would suggest not giving billions to anybody, especially not those operating on failed business models. But common sense and prudence have been abandoned, so expecting anything but the outrageous at this point is wishful thinking.
I agree that Wagoner is in and of himself not vital to the chimera of a GM recovery. I take note of the fact, though, that the occupant of the White House has directly fired the CEO of a major corporation.
No. He didn't (and couldn't) fire Wagoner. Wagoner and the GM board could have told Obama that Wagoner was staying. And then the Obama administration simply wouldn't have provided more billions in loans. Private lenders loaning large sums of money to companies in serious trouble often place strict conditions on their offers also.
A further illustration of why it was a bad idea for GM to accept taxpayer money. Where does it state that because the government is LOANING taxpayer dollars to GM that they are now obliged to dictate how the company should be run.
Obama could have just as easily left this decision to GM's board. A new precedent is now set. Look for this action to become common under this administration.
A precedent has been set that companies looking for a second round of government handouts instead of filing Chapter 11 will have to consider painful cutbacks, starting with a CEO who has been in place nine years without being able to either change the course or knock chunks off the looming iceberg? Sign me up!
My only worry, as others have also expressed, is that Wagoner's abdication will prove to be a symbolic meat to feed the MSM's short attention span, after which useful action ceases to occur.
Regardless of whether Wagoner should run GM.
How does this work? Many companies rely on government contracts. Defense companies, startups, medical centers, universities, etc., all subsist to a large degree on taxpayer monies allocated by the Federal goverment.
At what point does President Obama get the authority to ask for the resignation of someone in the private sector?
Actually, government contracting and grant processes often do come with lots of strings attached, but that's not what we have here. The bailout was a unique government loan in place of the normal procedure for addressing defunct businesses through the private sector and civil action: takeover, or bankruptcy proceedings. In either of those cases there's a very good chance most of the senior management would have been out the door on day two, not left in place to dissipate another $17B.
Wagoner isn't stepping down out of benevolence or admission of guilt - he certainly got a package.
How are they going to deal with the political uproar of again paying a very wealthy man a significant amount of money to quit?
The question is whether his resignation triggers the package based on his contract or whether he got a promise from the administration.
Regardless of which option it is - is the administration going to be shocked and surprised that Wagoner is going to get a golden parachute and demand he pay it back?
Or perhaps they will write special tax code that says "Former CEOs of automakers that have voluntarily stepped down after March 1st, 2009 have to pay 100% tax."
Step 1: Wagoner resigns, and a government functionary replaces him as CEO.
Step 2: ???
Step 3: Profit.
We do remember the government isn't good at running businesses, right? I'm pretty sure we had a major ideological struggle on that point last century.
Christian Streiff is available.
TallDave@10:15
I challenge that assertion to begin with. One could argue that government is no worse than the private sector in running businessess, with the wreckage of closed firms in the private sector the evidence. There are just a lot of private sector screw ups out there.
While you don't want the government in business crowding out more creative efforts in the private sector, you also don't want the government bailing out private businesses without strings attached.
Wagoner was part of the problem and while the Feds hardly have a solution, continuing with the status quo does not lead you closer to finding a solution. This was designed to satisfy the "little person" before giving GM more money and to shake things up (with labor/unions). Hopefully it works.
I am one who thinks that aside from your major financial firms (who provide the loans and knowledge to finance industry), that almost every other industry should be left to flounder.
I'll throw this one out again as it has become relevant again:
Why do GM cars have 4 seats? One for the driver, one for the mechanic, one for the electrician and one for the computer tech.
British automotive brands became synonymous with unreliability when they were owned by government. There is no reason to believe the GM won't follow suit.
Private businesses that make mistakes in strategy and execution eventually go out of business. Government owned corporations that do poorly get more and more and more and more subsidies until someone like Thatcher come along and put them out of their misery.
As for this being a solution to anything, all it will do is maintain an overcapacity in production that will squeeze all the other players on the market, essentially forcing other manufacturers out of business, or into the tender care of government subsidy.
I see no reason to think that the automotive sales will return to 2006/7 levels any time soon.
Derek
"One could argue that government is no worse than the private sector in running businessess, with the wreckage of closed firms in the private sector the evidence."
Wow. Did someone just assert that?
I assume this is basically theater, but I'd say that's true a great deal of the time when a CEO is forced out. In this case, the goal is for the Obama administration to be able to claim that they've been tough on GM's management, so they can justify another several-billion-dollar bailout. Which will be followed, a year or so from now, by another, and another, and so on, till either the crisis ends or something happens to our ability to write bailout checks. We'd really better hope the crisis ends first.
Megan,
With all due respect, you as a financial journalist can't possibly have anything but the faintest idea about whether Rick Wagonner's replacement will be an improvement or not. You are just too far away from the knowledge needed to make that judgment.
The discussion to which you are qualified to contribute is the one about wisdom of the government making these kinds of demands in this situation. Not so much about the right of the government to make them, which is itself an interesting question, but the wisdom of its doing so (see Josh M's comment above).
Hmmm - your last paragraph worries me:
And the symbolism, both to the taxpayer and the employees, is important. GM can't be given vast sums without some visible sign of serious change. Let's hope the new CEO actually brings some, rather than providing window dressing for a continuation of business as usual.
What is symbolism if not window dressing? I'm concerned that this is the Andy Warholization of the presidence - all window dressing, all the time. Clever and self-conscious window dressing, but still symbolism.
Yes, I thought the same thing when I first read this: window dressing = symbolism.
I'm not terribly concerned about Wagoner. I am concerned, though, about White House announcements that seem to telegraph that if you're getting bail-out money you serve at the pleasure of the President.
During the campaign, numerous jokes were made about Candidate Obama's propensity to "throw people under the bus." Since then, we've seen Congressional Committees casually rake Ed Liddy over the coals as though he'd made the mess at AIG, as opposed to having been brought in to clean it up. Then we had the House voting to tax away the AIG bonuses. Obama backed away from that, but at the same time various AIG people starting giving them back "voluntarily" when the Cuomo talked about publishing the recipients' names and addresses.
In the current environment, what sort of idiot would agree to be the CEO of GM? After all, you've got all the intractable problems Megan mentions, a lot of them involve a union near and dear to the hearts of the Democrats in charge, and none of them are going to be solved in the next two quarters. And with the Liddy grilling, we've all seen how the pols thank people for helping clean up corporate messes. GM needs someone to clean house, shut down unprofitable divisions and make the unions take a haircut with everyone else. But in the current environment, success as a CEO will be rooted in the ability to play politics and suggest that the administration has things in hand, not to make the real changes GM needs to survive for real. I may be wrong, but I have a feeling that when we are evaluating the new CEO's performance six months down the line, it won't be based on whether GM has taken real steps to become profitable but on how much or how little squawking there is about their latest bail-out application.
In a perfect world, GM would not have made horrible business decisions the last 40 years and wouldn't have to be in this position. In a perfect world, GM would be forced to declare Chapter 7 or 11 bankruptcy and there would be no government bailouts. We're already well into "Barack in Wonderland" territory now, why not go whole hog and become the Soviet Union?
Wagoner should have been canned 4 years ago. This is just a publicity stunt AND sets a potentially dangerous precedent of Obama deciding who gets to be CEO of XYZ Corporation. We are getting dangerously close to a tipping point of a Stalinist dictatorship.
BTW, the larger issue here with the GM/Chrysler/Delphi bailouts is that 2 million auto jobs are at stake. This is potentially a situation that if those 2 million workers were out of a job soon, they could be part of a tipping point that turned America from a mixed-economy to a full-blown socialist worker's paradise.
"This is potentially a situation that if those 2 million workers were out of a job soon"
I'd like to put to rest this "millions of jobs are at stake unless we take money from profitable companies to fund unprofitable ones"
How about we turn the argument on its head. What kind of distortionary effect are you have on an economy if you have millions of jobs devoted to producing the wrong things -- things that people don't need, don't want, and are being produced unprofitably.
On top of that distortion, you take money from the companies and people who are by definition using it most profitably (because they have profits to be taxed) and reduce the amount of future investment and growth available to them.
Way to go geniuses. Maybe if you'd been around 150 years ago you could have saved all those millions of workers in the whaling, whale fat and oil lamp industries.
Exellent! Exactly! I'm heartened to see there are still people out there who understand this.
Companies are supposed to go bankrupt. In fact, entire industries are supposed to die off as new and better industries replace them.
The notion that we have some businesses that are "too big to fail" is anathema to whole idea of free markets.
Arrow,
Not necessarily directed at you, but in general at the "jobs are at stake we gotta do something".
Sam,
Actually I was taking the left-wing position on the issue as an intellectual exercise. Of course it's not the good economic thing to preserve a job for the sake of it. However there are political consequences for allowing jobs to be obsoleted.
I'll believe this talk about a "structured" bankruptcy when I see it. Unless it involves giving the bondholders either cash or guaranteed debt I don't see them agreeing to it. The terms as set forth by the government make it better for the bondholders to take their chance in bankruptcy court where they would be on equal footing with the UAW
I noticed that Atlas Shrugged is on the bestseller list at Amazon. I wouldn't be surprised if there were a bunch of people going John Galt on our asses.
And the concomitant giant sucking sound of companies fleeing to other countries.
This "off with his head!" action by the POTUS is frightening. BHO says it's because GM isn't lean, mean enough. What does BHO know about it?! When has he ever done anything remotely like what Wagoner has?
If part of being lean and mean is dealing with the UAW, is the President really advocating taking on the unions? Dance with the one who brought ya, Barry.
I'll be really frightened when Barack the Magic Telemprompter starts dictating to CEOs of profitable companies.
It is unseemly for the President of the United States to be actively managing our largest corporations without legal authority. If 'nationalized' means anything at all, doesn't it encompass the President directly appointing the CEO of an american business unit without reference to its board of directors or common shareholders? We have ample receivership laws governing the actions taken when a major corporation cannot continue normal operations. They involve the intervention of the judiciary in restructuring the ailing firm. The administration just tore up the law and the constitution because it didn't find it convenient to follow said law. Please revisit the soliloquy of Sir Thomas Moore regarding Sir Richard Rich from 'A Man for All Seasons'. We're all going to regret this action, for reasons having nothing to do with the leadership of Wagoner.
Unless I'm mistaken, BHO hasn't appointed anyone to take Wagoner's job, so I don't see anything unconstitutional about what he is doing. At best, this is all window dressing. In a less rosy scenario, this is sending a very poor message to the rest of the business world. So it seems like a poor, but legal, move.
What happened to the events of last week and the week before? It seems that in the case of firms like AIG, this is not true.
Someone did. With evidence. What evidence would satisfy you that this is the case? What evidence do you have to back up your position?
The assertion wasn't denied, so no argument is needed. Astonishment was merely expressed. There are perfectly reasonable interpretations other than the obvious. One could of course express astonishment at how vapid the statement is: government is obviously better at running businesses where the criterion of judgment is whether or not the firm has closed -- the government can prop up businesses that the private sector would have shut down for pretty much as long as it wants to.
Do you have anything to contribute? To throw the snark right back at ya, there are reasonable interpretations to what I wrote other than the obvious.
If you're going to try pull this off, would you at least put some effort into it?
I'll leave that judgment to you.
No.
Scent of Violets--you do know that they sacked the head of AIG when they nationalized, right?
Um, I wasn't aware that AIG had been nationalized. Nor that Obama (or Bush) was responsible for the sacking; IIRC Willumstad resigned at the behest of Paulson, did he not?
If I'm wrong, I'll concede your point; if not, will you be gracious enough to admit your error?
The Fed shoved the existing shareholders aside and took an 80% stake of the company using its ability to produce and control the US money supply. That's pretty much a de facto nationalization, although I suppose a mildly autitistic D&D player could argue around it (or just argue until everyone else conceded the point out of terminal acedia).
Wow. Did some people really not notice what happened to economies in Eastern Europe and Russia when the government ran all businesses?
If the 10:1 ratio in GDP per capita between free enterprise South Korea and gov't-control North Korea is too difficult to visualize, just look at a night-time satellite photo.
For crying out loud, even the Communist Party in China doesn't believe government can run businesses effectively anymore.
Don't bother. There is always some hot dog shack in Hoboken that the local municipality turned around, which proves--proves!--that government is a fine economic allocation device as compared to possible alternatives.
Two other points - removing Wagoner at this juncture seems kind of like letting someone go despite the valuable insider expertise they have in winding down a division. Also, removing Wagoner won't have an effect on the corporate culture.
Am I missing something on that one? What could be done that would have an effect on this culture? What could be done that is accessible to an outsider, even a powerful one, to change the culture?
At this point, we have people like Robin Hanson singing the praises of predictive markets to the People Who Listen when really all they are is a roundabout way to get information from people who are actually doing the work. I'll say it again, or rather, I'll say what my dad said again: if you want management to do something, have some union rep or floor worker say the opposite.
Why on earth would you assert that?
Calling the auto industry a "dying industry" seems to be overstating the case. There is plenty of overcapacity in the industry that needs to be shed, but that doesn't mean smaller auto companies won't be profitable in the future. Steel was a "dying industry" years ago, but after the necessary restructurings and reductions in capacity, there are profitable American steelmakers today, such as U.S. Steel and Nucor.
That is until Obama decides it's time to nationalize the steel industry because "it's in the national interest".
Politicians in general spend too much time on window dressing, symbolic acts, and appeasement. They do not spend nearly enough time on actually figuring out what needs to be done. To do so would require a leader and we don't seem to elect very many leaders.
Count me with those who are not thrilled about the President influencing business decisions. It's one thing to pass a bailout bill and attach provisions to it, it's another for the President to hint that, "Gee, that sure is a nice company you have there... be a shame if something should happen to it. I can give you some money if you get rid of that Wagoner guy..."
P.S. Please go back to flat comments... it's such a pain to go through the threaded comments to find new ones...
The more I read SoV, the more I think he's an Obama-paid astroturfer.
Only someone being paid could be this consistently stupid and wrong and beaten by a host of people on basic points of logic and just continue to reassert the same losing, illogical thoughts.
P.S. this is the old Basic Fact. The imposter Basic Fact unfortunately seems to have snapped up my name.
Could you go with Le Basic Fact? Or perhaps Simple Fact, or Basic Fact with a Vengeance? Lurker sounds like you're going to open up your trench coat and flash me at any moment.
I've asked it before.. what is Lou Gerstner doing. Play it again Louis. The most important point here is not the CEO is stepping down but who will be the new one. Elephants can dance if they lose their fear of.. smaller mass products & services. GM will at least have to try to become customer centric again. And by customer centric I do not mean listening to what some old customers want but listening to the whole market. After all - you get your bailout money from the whole market and not merely from NRA members? Stop claiming to be American and start acting American again.
If I may jump in again, as of a few minutes ago the DJIA was down 3% and GM stock was down 25%. That does not reflect an investor vote of confidence in what EARNEST ICONOCLAST said very well in the last two sentences in his second paragraph at 1152 hrs.
According to the statement released by the White House:
"In fact, it will be safer than it's ever been. Because starting today, the United States government will stand behind your warrantee."
The spelling of 'warrantee' was in the release by Reuters. It may reflect an editing error by Reuters, it may reflect the increasing inability of the government at all levels to deal with the English language, or it may mean that they are weasel wording and will only guarantee something called a 'warrantee' instead of the more commonly used 'warranty'. But even making the assumption there is no weasel-wording going on; it has become painfully apparent over the last two months that any promises by Barack Hussein Obama come with an expiration date, said date being triggered by them becoming inconvenient. But let us make the assumption that the Federal government will honor the warranties. As we all know, getting an automaker to honor a warranty is frequently a major battle. As is getting the Federal government to do what it is supposed to do. Combine the two by getting the Federals involved in warranty work and payments, and it may become well nigh impossible.
From a consumer point of view, the rational response is to avoid GM products. This, of course, will bring about the eventual bankruptcy of the company unless the administration sanctions the installation of a permanent high suction hose to the Treasury in order to keep paying off the UAW for campaign contributions. [n.b.: I am not speaking as a "GM-hater". My only American made vehicle is an old Chevy truck, of which I am more than passing fond.]
Subotai Bahadur
From a consumer point of view, the rational response is to avoid GM products.
That's what we've been doing for years, Subotai.
Obama is tanking faster than I predicted.
This actually sounds like they're moving in the right direction:
Someone over there is making sense.
TallDave,
I think what can be said is that someone over there realizes that the language needs to make it appear that someone is moving in the right direction, but I feel pretty confident that this is simply doublespeak at work. A week or two from now, a new plan will be declared acceptable (we won't get to find out what the plan is) and the money will be transferred to the GM account.
It appears that yancey ward is trying to make sense of TallDave's comment without result.
I think your prediction is wrong; we'll get a plan for GM; unlike AIG. President Obama's proven to be a quick study; he understands the need for detail, no matter how little you might like those details.
GM needs a restructuring under the bankruptcy code. It really is that simple. The company needs to shed the debt obligations to its bondholders and its former and present employees and give them equity in its place, and it needs to shed all of the car products that have no reasonable potential to provide profits (this part will require the government to act to change fuel mileage laws).
That is the only reasonable path forward short of making them a permanent line item in the federal budget.
If GM goes into regular bankruptcy it will never come out. It's either a prepack or continual life support.
Can you imagine the negotiations necessary for the prepack? Its one thing to reorg a $100 million revenue company. But GM? My mind staggers at the thought of the effort and hardball involved. Only a looming Gotterdammerung would get all the parties to stop the squabbling and accept the prepack. It would make an excellent story for some business journalist. (You listening, Atlantic reporters...?)
When I hear this talk about "a quick rinse" bankruptcy it kinda sounds like a short and victorious war. I would hope that the Obama administration would at least secure an agreement with the bondholders before they head to BK court.
Solon, that's just newthink (herein dubbed Obamathink). parts of GM would come out, just not a lot of it.
If I were a GM executive/worker, I'd be *running* towards the exit.
Anyone who could has left already. Southeast Michigan has not seen real business talent arrive ready to work in at least a generation. The talent goes elsewhere.
Yancey,
I agree, they need a bankruptcy restructuring, and Obama's rhetoric tends to suggest his team may be starting to understand that. This sounds like a managed bankruptcy,
Now, of course, the devil will be in the details. One might be skeptical that a government-mediated bankruptcy is going to be anything but a taxpayer-financed transfer of wealth to political interests, rather than a real plan for profitable operation. The two are obviously to some extent mutually exclusive.