Friday, under the slightly exaggerated headline “Obama to Run GM, Chrysler,” I passed on word that President Obama was going to demand “pretty drastic changes” in order to back further bailouts for the two struggling US auto companies. Well, reductio creep happened before the weekend expired, as the top story at memeorandum shows. I’ll let others chose the headlines:
- GM CEO resigns at Obama’s behest – Politico
- GM Chief to Resign at White House’s Behest – WaPo (A1)
- Government Forces Out Wagoner at GM – WSJ
- U.S. Moves to Overhaul Ailing Carmakers – NYT
- US autos task force rejects GM, Chrysler plans – Reuters
- GM CEO Wagoner forced out as part of gov’t plan – AP
- General Motors Chief Rick Wagoner Said to Step Down – Bloomberg
Now, Wagoner’s been at GM for thirty years and running it for eight and the company has continued its decline under his watch. So, maybe it’s time for change. (And hope!) But is Barack Obama really qualified to make that decision? Is Timothy Geithner?
To be fair, the oversight was conducted by a Presidential Task Force on the Auto Industry. It was “comprised of cabinet members and other top officials” but “senior policy aides would handle much of the day-to-day work. The 10 senior aides advising the task force include economists, professors and former Obama campaign aides.” Well, who better than professors and politicos to run a multinational auto company? (If it’ll make you feel better, the team is ” headed by former investment banker Steve Rattner.” That does make you feel better, right?)
According to Bloomberg, the top candidate is GM COO Fritz Henderson who has “run every region, he’s been number two and he knows where all the bodies are buried.” Why would the number two guy be a better choice? That’s like firing the head coach of a 1-15 team and picking the defensive coordinator from the number 32 defense as his replacement.
WaPo‘s Peter Whorinsky reports, “The administration effectively rejected as untenable the business plans that GM and Chrysler had submitted to restructure their companies, saying that neither had fulfilled the terms of the federal loans the companies received in December.”
Chrysler, which the administration believes cannot survive as a stand-alone company, must reach an agreement to partner with the Italian automaker, Fiat, in the next 30 days to become eligible for as much as $6 billion in additional federal loans.
Now, that’s pretty specific! Partner with Fiat in the next 30 days or else! But, why not just let Fiat and others bid on whichever parts of Chrysler they think viable? And why give then $6 billion from the U.S. taxpayer once they’ve been acquired by a foreign firm? Isn’t that effectively a subsidy for Fiat?!
GM, which has shed thousands of workers since the downturn began, must devise a leaner business plan that likely will cut the company workforce and product lines even more than officials had contemplated. It has 60 days to come up with a new approach.
Shut down product lines and put more people out of work! That strikes me as probably necessary given the saturation in the market. But why not just let GM go bankrupt and restructure naturally, then? The point of the government bailout was, after all, to save jobs.
It gets better. According to Neil King and John Stoll at WSJ, Obama’s Poindexters believe “the best chance for success for both GM and Chrysler ‘may well require utilizing the bankruptcy code in a quick and surgical way.’” So, why not just skip ahead again?
More good news:
The clearest losers appear to be the thousands of bondholders and lenders to both GM and Chrysler. In both cases, administration officials said that the companies were burdened by inordinate amounts of debt that would have to be scrubbed. Chrysler’s survival, the administration said, would require “extinguishing the vast majority” of the company’s secured debt and all of its unsecured debt and equity.
To assure consumers reluctant to buy GM or Chrysler cars, the government plans to take the unusual step of guaranteeing all warrantees on new cars from either company. These guarantees would lapse back to the companies once they return to health.
Cool!
Megan McArdle more-or-less approves, thinking it provides good optics even if it’s mostly a symbolic move because, “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.”
Barry Ritholz wonders what took so long.
I am no fan of Wagoners, but I have to ask the geniuses behind the bank bailouts: When are you going to ask the TARP and bailout recipients to step down? Ken Lewis being asked to step aside after many years of running BofA ? How about Blankfein? Pandit? And the rest of the TARP recipients?
Meanwhile, Doug Mataconis at Liberty Papers believes “there’s something shockingly wrong about this. The President of the United States has fired the Chief Executive Officer of an American corporation whose shares are held by millions of people. If the American people don’t realize that there is something horribly wrong about the precedent that this sets, then we are truly screwed.” Barbara O’Brien, though, assures us that this is not actually Communism.
UPDATE: Another AP headline: “Peugeot shares tumble after boardroom shakeup.”
Shares in PSA Peugeot-Citroen tumbled more than 6 percent early Monday after the loss-making French car maker abruptly ousted its CEO and named a long-time steel industry executive to replace him.
Whether this is related or a merely interesting coincidence, we’ll see.
UPDATE II: Dave Schuler wonders “what market niche the Obama Administration thinks that GM will compete in? They clearly disapprove of light trucks and SUV’s, the area in which GM has been making most of its money lately.” In some detail, he explains why luxury cars, mid-size vehicles, and sub-subcompacts are not viable options, either. And Kate McMillan notes that “American hybrid sales fall off a cliff.”
Really, though, worrying about what kinds of vehicles people will be willing to spend money on is so 2007. Now that we’re socializing the auto industry, we’ll buy whatever cars are permitted.
Update (Steve Verdon): That last line maybe somewhat prescient, given that while California is not banning black and other dark colored cars yet, it is definitely something that some have been thinking about.
