Does this serve a purpose? I mean other than as a public bloodletting?
They should have used the same tactics on Wall Street. Suddenly these wall street guys are necessary. Wagoner is not. The financial contracts are to be honored. The UAW has to renegotiate down.
We’ll find out if it serves a purpose when we find out who replaces him, and how much influence the Obama administration has on the pick.
It serves another purpose - it helps illustrate the price you pay when you decide to get in bed with the government. Hopefully, this will convince more companies to stay far away from the Obama administration and its grand plans.
To be fair, I believe the Bush administration did the same thing last year. Didn’t it demand the resignation of the head of AIG before giving it a bailout?
This is going to be a cite free post, but IIRC, the Obama Administration demanded that GM meet certain benchmarks by this week, and GM said they would not meet them.
This is a shot across the bow to both the management and the UAW (not to mention Wall Street). I applaud the move. About frickin’ time we had a CIC with the balls to stick it corporate America.
Fine, take the money - just understand that business as usual has officially ended.
I applaud this move for one reason - it will put an end to every corporation in America lining up for piece of the bailout pie.
Sounds like a win-win to me.
In fairness, he who pays the piper calls the damned tune. If an impact of this is to impress that lesson on CEOs of large corporations who, in the long run, might see self-sufficiency of their companies as important to their job security, that sounds good to me. Part of the reason we have a cascading financial disaster is that the heads of various investment banks were counting on free bailout money in the event of a collapse in the real estate market, operating on the assumption the US government would help save their jobs and bonuses. Obama was have to demand a lot more resignations to get the effect I’d like, but Wagoner’s a good start.
Indeed it did, which is why Libby’s in charge.
If it were a private investor stepping in to buy up a failing company, it wouldn’t be too unusual for them to make some changes at the top. That’s basically what’s happening here, except that the investor is the US government.
There are plenty of reasons why they might ask for the CEO to resign. They might want to make sure it’s their own guy in there. They might be asking for some heads, especially after the blowback from the AIGFP exec bonuses. And they might just think that the person who drove the bus into the lake might not be the best pick to drive it out. It’s probably a little of all three.
More to the point, it helps illustrate the price you pay when you end up in a position where you have to get in bed with the government. It’s not like GM has a choice here–it’s accept the bailout money, or cease to be. If a company has to think about whether it should take a bailout, it shouldn’t be offered one.
It looks like GM is going to have to agree to the equivalent of receivership in bankruptcy, even if they don’t do it formally, which is what should happen. GM’s value to the economy as a whole is probably several hundred billion. Yes, there should be a price for asking the government for a bunch of rush loans like this, and the head of one or two CEOs who have taken their millions and then retire sweetly just isn’t going to cut it. A going bust tax that claws back all the overpaid benefits for the last 10 years (like the tax the AIG bonus tax) might make is sufficiently unprofitable to loot a company so that all the execs and big earners are invested. If the production line labor loses all its retirement benefits and health care, why aren’t the rich dudes who caused it also at risk?
Rick is one of the biggest bullshit artists in business today. No, the biggest. This is a good thing for GM, and one of the few that can save it. Let’s see what happens next. Mr. Obama just got serious.
Well, let’s not skip over the fact that the UAW has ownership of part of this mess as well.
Why the disdain? If GM merged with BMW to fend off bankruptcy, and the CEO of BMW forced Wagoner to step down, it would be a measured and reasonable business decision.
GM merged with the US of A, and its CEO asked him to step down.
What could happen is that companies of all types stop participating in the bailout plans. Banks and other financial institutions are already trying to give back the bailout money because they are beginning to see the strings attached.
http://atlantis.cbsnews.com/2100-100_162-4870208.html
I think many CEO’s would rather go down with the ship than walk the plank. Businesses that may have benefited from the bailout will now choose not to participate rather than lose control. Long term, I think this is a good thing. Better that weak companies fail than have the government prop them up and control them.
This +1.
The problem with bailouts - and Sam, you’ve mentioned this many times - is the moral hazard of encouraging large corporations to think that taking unreasonable risks and going belly up is okay because Uncle Sam, with money from The Taxpayer, will come along and save them anyway. Perhaps establishing that if you come begging there will be consequences is a good thing.
Rick Wagoner deserved to lose his job, of course; I cannot imagine how a CEO can fail any worse than his company no longer being solvent. If that doesn’t get a CEO fired what possibly could? But that’s really a separate issue; the problem is the moral hazard.
IMHO no person on this planet could have made a success running the US car companies. The UAW would not accept serious sacrifices unless the companies were bankrupt or almost bankrupt, and they had the power to drive the companies into bankruptcy themselves. The execs had to gamble on the best deal they could make with the unions and hope that everything else worked in their favor. When it didn’t the companies collapsed.
Even if you knew everything that we know now and went back in time - or equivalently, even if some brilliant visionary would have been running GM (or Ford or Chrysler) at the time - you would have been virtually helpless to do anything about it. Because as long as the unions didn’t agree with you that the world was about to cave in they would strike forever - or at least hold out longer than the company could afford to - rather than take drastic cuts. And as long as you couldn’t get drastic cuts you couldn’t compete with Japanese carmakers and had to focus on areas in which the Japanese didn’t compete (i.e. big cars/trucks/SUVs), and if the market went sour on that you were doomed.
One part of the union-management dynamic is that the different companies negotiate with the union separately, but the union keeps its eye on the big picture. Traditionally, the UAW selected on auto company as the focus of its negotiations, and once they got a certain deal from this company, they expected the others to follow suit. So when they considered a possible concession to one company, it was looked at in terms of the precedent that was set for the rest, which added to their motivation and determination.
But that’s not nearly all of it.
There are a lot of people who tend to view Big Corporations as being loaded with money simply by virtue of the fact that they are big companies, and unions tend to do so more than most. If an automaker asks for a concession from a union, to the minds of the union people that’s just a bunch of Rich Fat Cats out to squeeze the Hardworking Little Guy, and that perception was not going to change until the writing was on the wall in big bold letters.
[One note to the above: this is not to say that there were no missteps along the way by senior management, and that things could not have been done differently here and there. But those are the minor details and ignore the big picture. No person is perfect, and every single manager will make some wrong decisions or take some gambles that don’t work out. For this reason it’s not reasonable to assume that one option on the table is to have perfect management that will make no incorrect decisions in the face of an insurmountable structural problem.]
That said, I have no idea if RW was a good manager or a bad one. But you cannot take the fact that his company went BK (for all intents and purposes) as evidence of this.
If other companies in the same situation were doing noticeably better, it would make sense to assume that other minds were able to see or do something that RW did not. But if everyone in the same general area is performing about the same, it is not logical to conclude that the fault is in the specific individuals.
Always the unions isn’t it? The auto companies were rolling in profits and agreed to contracts they could afford. Nobody held a gun to their heads. Union wages have been slashed from the cost of autos for decades. Automation has been reducing workers for years. Unions ,if they were a problem at all, have ceased to be one long ago. Note of course that they have been granting concessions over and over. But the silly whining just never stops.
NAFTA has set the groundwork that will result in the whole world paying approx. the same wages for labor. Our wages are dropping fast. The working stiff is in deep shit now.
It is not the job of the CIC to tell any business in America how it should conduct itself. GM should have told Obama to go pound sand.
GM lost its sand-pound-telling rights when it asked the government to give it money.
Finally, someone with the stones to say it out loud. It’s about time we had someone in charge who lays down the law and forces change. Thank you sir.
They wouldn’t dare, cos then Obama would definitely force out the man in charge at GM who tells him to go pound sand in a very embarrasing and public manner. Just remember that they’ve now got the goods on GM and the decisions they made over the years and who made them.
If the unions were killing the company, then why didn’t the company go non-union like the Japanese companies they were competing with? Yeah, it would have gotten some folks unhappy with them, but they’re not exactly Mr. Popularity right now, either. And if the unions were genuinely so essential to the company that they couldn’t have gotten rid of them, then the pay and benefits they were demanding were perfectly reasonable.