GM head Wagoner quits at Obama's request. And?

Great Debates
21

(Bolding mine.) That’s the part I don’t like. The taxpayer is now implicitly on the hook for GM’s calls one way or the other.

I have no love or sympathy for Rick Wagoner (see below), but I also don’t like this constant bailout fever. While I wish Bush had requested it, it was really Congress’s call and they welched on it last year. The better move would be to laugh and let GM die and get broken up. It wouldn’t stop running; it would just be bought out, rebuilt by investors, and restructured into two or three different companies.

Right now, the “negative externalities” are going both ways. The private investors in GM are probably going to lose a lot of money, and the public is on the hook, and nobody except the government wins.

(And Mr. Obama is about as serious as a Chico Marx, but that’s neither here nor there.)

No, this is not quite right. GM’s management has been and still is grossly incompetent for at least three decades now. Unlike someother son this board, I view their decision to offer SUV’s as a wise one. Betting the farm on people always wanting them in huge volumes forever was not. The decision to go heavily into robotics was not stupid… spending enough on it to buy out Toyota, Honda, and Nissan combined was not (this was a while back). Wagoner ran the company into the ground two or three times over. And he’s so bloody slick that he keeps his job (Seriously, the man really is the world’s best Bullshitter. It’s amazing how much shit he slings.)

That said, the Unions were grossly stupid, and have treated the company like a horse to be ridden to death. They’re just trying to get as much as they can without a thought or care for the 'morrow, and now they’re up against the wall and realizing they’ve very little bargaining position left, so they try pure obstinance.

22

A lot of that problem came from Paulson pushing bailout money on banks that didn’t really need it to keep the money from being a scarlet letter. These banks have either sat on the money or are planning to use it to acquire weaker banks. Giving it back won’t hurt the economy. I doubt any bank in serious trouble is going to be returning the money any time soon.

23

They could “afford” these contracts by failing to improve the quality of their product (relying on steadily eroding consumer loyalty), and by focusing on very narrow segment of the market. These were high-risk, short-term strategies, but the unions were holding a “gun to their head” in the form of a strike threat.

I tend to agree with this. But the rest of the post does not follow - to the contrary.

If for whatever reason, international competition is such that the only way to compete is to pay low wages to employees, then that’s just something to live with. It may not be “right” or “just” or happy, but it just is. As a practical matter, in a circumstance where the competition is paying X level of compensation, any company that pays significantly more will not survive, like it or not.

The only way around that is protectionist policies, which essentially amount to a subsidy by the people (in the form of higher prices) for the employees of this industry (these employees will themselves in turn subsidize the employees of other industries in similar situations).

You can make an argument in favor of protectionist policies. But that’s not the discussion here. The issue here is whether the fact that GM is essentially bankrupt is evidence that current management did a lousy job. It isn’t.

24

You guys are for responsibility - except for CEOs, right? Sure, the best thing to do would be for Rick to shoot the company in the head to avoid the embarrassment of being canned.
Do you think they didn’t need the money? Do you think the money should have been given to them without conditions? Given there were conditions, do you think failing to meet them should have no consequences?

The replacement is a high level person at GM, so no learning curve, which is good.

Some times the Darth Vader performance review and action strategy is the way to go.

25

A company does not have the legal option to “go non-union”.

26

Wagoner should have been out years ago. That does not make it Obama’s place to fix it.

Actually, the money shouldn’t have been given at all. Heck, I could use the money more, and still probably spend it more wisely than GM!

That’s the other part of the problem. The new head, and probably the entire corporate executive, needs to be replaced with outsiders.

No argument there. Obama has no understanding of how to do it properly.

27

The Democratic controlled Congress voted down the bailout last year, and Bush did it anyway.
And I believe (please sit down before reading this) Bush was right. Letting big companies in critical industries just die has unintended consequences, as Lehman showed. Obama set up the warranty guarantee which gives a slight chance that GM will be able to sell cars even if they do go bankrupt.

And I agree with you that the whole management chain needs to be replaced - but that can’t be done overnight.

28

I agree that the money shouldn’t have been given out at all. GM should have gone through the regular bankruptcy channels, or been sold off privately. The country is almost certainly better off letting failing companies fail rather then propping them up on life support, a waste of resources.

That said, if we start with the assumption that the money, has been given out, it is certainly Obama’s place to “fix it”. A company’s shareholders would expect no less from the new ownership, I do not see how this is different. If GM does not like the conditions, it is free to leave the money alone and close up shop.

29

So what’s up with Ford and their whole “not taking the latest round of bailout money” thing? I’m not an expert on the U.S. auto industry and I suspect Ford is not a fabulous company right now, but at least they don’t need billions to remain solvent. Don’t you think the fact that they didn’t even request money in the last bail out and are not currently being evaluated for viability by the Obama administration hurts your claim that nobody could keep an US automaker from failing? How’d they pull it off with the UAW trying so hard to ruin America?

30

It’s possible. I think you need to view their decisions in the context of the situation they were in and the options that were available.

If a football coach is behind late in the fourth quarter and goes for the Hail Mary it is not shown to have been a wrong strategy because it failed. It would be a wrong strategy to do this throughout the game, but when the deck is stacked against you you have to gamble more aggressively than otherwise, and there’s a good chance it won’t pay off.

That said, it could be that they should have done better. My points here are

  1. You cannot prove this merely by pointing to the fact that they went BK, and
  2. Even if they had done some things better, they would still be in roughly the same situation. So when considering the management effectiveness, assuming that they are currently losing $2B a month (for simplicity), you can argue that

a) RW is a genius and if not for his able leadership they would be losing $2.2B a month
b) RW is a moron and if not for his stupidity they would be losing $1.8B a month
c) RW is a typical mediocre CEO, and if not for him they would likely be losing $2.0B anyway.

IOW, he might be good and he might be bad, but that’s not the big deal here.

That said, I would tend to be skeptical of your second-guessing. I myself don’t follow the ins and outs of the auto world all that closely, but I’ve seen some analysis of GM and the others’ strategy, and it did not seem as though many shared your viewpoints at the time. Hindsight is 20-20.

I believe this is seriously misleading if not completely inaccurate.

(BTW, I see that RW walks away with $20M.)

31

Before or after they took the billions of dollars they need to remain solvent? They still do that right? Or do they tell him to go pound sand and then go home and declare bankruptcy? It makes much more sense to make a reasoned decision about whether it’s better to go bankrupt or to take the cash they need to remain solvent with whatever requirements the guy whose in charge of giving it out imposes.

32

I assume you’re restricting yourself to legal conduct? Surely you aren’t saying the CIC cannot, through the actions of federal law enforcement personal, prevent a company from planning the murder the CEO of a competing company? :slight_smile:

Is your position that the bailout money should never have been given out? Or is your position that even if the bailout money is given out, the government should not be allowed to set any requirements for conduct? If the former, I agree 100%, if the latter, I can’t see how that is justified. As a significant owner in the company, the US government has a right to complain about management. It also has a right to make its financial support conditional. The company is free to decide if the money and conditions are a net positive for the future health and stockholder value. If so, they can take the money and conditions. If not, they can politely decline the offer.

It wasn’t clear to me that this is what you were suggesting, but anyone who suggests that the money should be given out without conditions is setting a dangerous precedent. I do not want companies in the future budgeting in free money from the government in their worst case analysis*.

*This is still a problem with not-so-free money with conditions, but is somewhat mitigated.

33

As discussed above, the UAW gives basically the same deal to all three automakers. Whatever concessions the UAW makes to GM in their situation are also given to Ford.

Ford is hemorrhaging money just as GM & Chrysler are. Ford is just as doomed as they are. But as luck would have it, their cash/credit reserves will last them just a little longer than GM & Chrysler’s will. Their hope is that by getting the same concessions as the others now, they can turn it around before they too run out of cash. Time will tell.

If not for GM and Chrysler facing the firing squad now, Ford’s turn would come as well, just a little bit later.

34

True - they didn’t actually reject it, they were deadlocked until the Administration stepped in.
Cite..

As for your other points, I seem to recall Apples was floundering also, until Jobs came back and turned things around. Some CEOs deserve the big bucks, some just want the money even though the problem is insurmountable to them.

35

I do. They still chose as badly as possible. Even today, they’re having a hard time getting their act together. They might or might not be able to break the union, but

First off, that’s wrong. Congress authorized funds for GM. Heck, it was their big ticket item and the center of the entire bailout hullaballoo. First they authorized all kinds of bridge loans. Then in December and January they went ahead with more money. That said, I don’t blame you for your confusion, since Bush was in the mess all through and

Second, GM is already dead. They’re just trying life support on a terminal cancer patient with terminal heart disease and end-stage AIDS.

As I’ve said before many times, this is just delaying the inevitable. GM needs to break up, all existing contracts (union, yes, but not just those) town up, the lines briefly shut down, and the company bought up at firesale prices.

Then, they’ll start up again. It has a lot of value, except the management is too timid and st6upid to use it properly. Ford and Chrysler may snap up a line. Much manufacturing may go independant. Some people have planned to snap up lines and build independant brands, like a revival of American Motors or Cadilac.

Do you really, seriously, honestly think GM is ever going to straighten up and get back into shape? No, it can’t. It’s got too much red ink right now, and the inventory costs alone might well sink it. It has few customers, and can make sales almost solely through losing money on the vehicles. You can either accept that, let it die, and bring it to new life, or keep funneling public funds into an ever-increasing black hole.

Structurally, it’s a waste, with vastly too much overhead and too much vertical integration. It can’t be managed right as-is.

36

To give you an example of how completely wrong this is, please consider this: The U.S. has almost completely free trade within its borders, and yet U.S. workers make very different amounts of pay. Ruminate on why that might be, then apply it to global free trade and see if you can spot the flaw in your thinking.

37

What if the car companies don’t do what Obama says? Is he going to let them fail?

I thought we already played those cards when everyone in government said last fall that we couldn’t allow that to happen; that car companies were “too big to fail” and that if they failed the effects on the economy would be disastrous.

Haven’t they called our bluff on this one?

38

See the final paragraph of my 11:59 post.

That’s true, but the reason it’s true is because they have a lot of the structure of the much larger company they used to be. (Which gets us back to the unions again, because GM and the others have to negotiate long and hard and pay through the nose for the right to close factories, or discontinue models etc.)

(Also, if you could humor me, put Voyager’s name on stuff you are quoting from him/her.)

39

More to the point (from my perspective, anyway) the main opposition in Congress was from Republicans, not from Democrats. So to say the “Democratic controlled Congress” voted it down is misleading, even if accurate.

(try: “The Republican controlled Senate voted down Robert Bork”)

40

And I agree, but even back in the mid 70’s, they were refusing to update things, and the unions weren’t hammering at the door quite yet. Today, I would agree with you. Wagoner hasn’t made any gross errors in the last decade he wasn’t forced to. That’s doesn’t mean he was the right man for the job at any point, nor excuse his terrible mistakes before that.

Ooops. Sorry! I try to get those when I go through putting down quotes, but I do miss them sometimes.