Autoline on Autoblog with John McElroy
WHY OBAMA AXED WAGONER
Rick Wagoner is no longer CEO of General Motors for two reasons. First, he failed to come up with a plan that satisfied the government that GM would be viable going forward. Two, President Obama needed political cover before he poured more money into the auto industry, a move which is strongly opposed by a majority of Americans.
Obama needed to show he was decisive and in control to maintain support for his efforts to provide taxpayer money to GM and Chrysler. And firing the chairman of General Motors will make it easier for the Administration to demand more concessions from the UAW.
While axing Wagoner caught me by surprise, after reading the Task Force's report, I almost wonder why the President didn't feel compelled to act sooner. The "Determination of Viability Summary" is a harsh critique of GM's plans. In the eyes of the Task Force, Wagoner simply did not move fast enough and did not meet the government's loan requirements: GM did not come up with a competitive labor agreement, did not renegotiate its VEBA payments, and did not come to an agreement with its bond holders. Indeed, under the latest plan GM submitted to the government, its restructuring efforts would not be completed until 2014.
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John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
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It also found fault with GM's assumption that its North American Operations would increase its contribution (profit) margin, despite the move towards passenger cars where it has lower margins. And it pointed out that GM's lingering perception problems mean it must discount its cars.
The Task Force laid out a litany of problems it sees with GM's plan:
Under its current plan GM would be at breakeven, at best, during the transition period. That alone failed the government's requirement for viability.
So what's next? President Obama gave GM 60 days to come up with a new plan, or he's going to force the company into bankruptcy. Whether that means a pre-packaged bankruptcy or formally filing for Chapter 11 no one knows.
But we can be sure of one thing. GM's new CEO Fritz Henderson undoubtedly got the message. Either he's going to come up with a new plan that addresses each and every one of the Task Force's concerns, or General Motors is going to have a brand new CEO in 60 days.
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Rick Wagoner is no longer CEO of General Motors for two reasons. First, he failed to come up with a plan that satisfied the government that GM would be viable going forward. Two, President Obama needed political cover before he poured more money into the auto industry, a move which is strongly opposed by a majority of Americans.Obama needed to show he was decisive and in control to maintain support for his efforts to provide taxpayer money to GM and Chrysler. And firing the chairman of General Motors will make it easier for the Administration to demand more concessions from the UAW.
While axing Wagoner caught me by surprise, after reading the Task Force's report, I almost wonder why the President didn't feel compelled to act sooner. The "Determination of Viability Summary" is a harsh critique of GM's plans. In the eyes of the Task Force, Wagoner simply did not move fast enough and did not meet the government's loan requirements: GM did not come up with a competitive labor agreement, did not renegotiate its VEBA payments, and did not come to an agreement with its bond holders. Indeed, under the latest plan GM submitted to the government, its restructuring efforts would not be completed until 2014.
____________________________________________________________________________________
John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
____________________________________________________________________________________
Wagoner simply did not move fast enough and did not meet the government's loan requirements.
Worse, the Task Force believes GM's plan made unrealistic assumptions. And yet, even with its rosy assumptions, GM's plan called for it to "generate negative cash flow" for years to come. Its legacy liabilities would cost $6 billion a year through 2014, requiring GM to boost sales by 900,000 vehicles a year to pay for it. But GM's plans didn't call for raising sales. Instead, it assumed that it would merely lose market share at a slower rate. The Task Force didn't buy that since GM is slashing fleet sales and closing brands.It also found fault with GM's assumption that its North American Operations would increase its contribution (profit) margin, despite the move towards passenger cars where it has lower margins. And it pointed out that GM's lingering perception problems mean it must discount its cars.
The Task Force laid out a litany of problems it sees with GM's plan:
- It's not getting rid of unprofitable or underperforming dealers fast enough.
- Its European operations need government help which has not been forthcoming.
- GM makes too much of its profits on trucks and SUVs, and is vulnerable to energy-price driven shifts in demand.
- Of its top 20 profit producers, only 9 are passenger cars.
- Most of its products are in the bottom quartile of fuel economy.
- GM is a design generation behind Toyota in green powertrains.
- The Volt will be too expensive to be a big commercial success.
- The plan leaves no room for error. Even a 1% miss on sales volume in 2014 would mean another $2 billion less in cash flow.
Under its current plan GM would be at breakeven, at best, during the transition period. That alone failed the government's requirement for viability.
What really drove the last nail in the coffin is that GM is already behind in its plan for 2009.
But what really drove the last nail in the coffin is that GM is already behind in its plan for 2009 sales and market share. That sapped any confidence that GM would hold to its plan going forward.So what's next? President Obama gave GM 60 days to come up with a new plan, or he's going to force the company into bankruptcy. Whether that means a pre-packaged bankruptcy or formally filing for Chapter 11 no one knows.
But we can be sure of one thing. GM's new CEO Fritz Henderson undoubtedly got the message. Either he's going to come up with a new plan that addresses each and every one of the Task Force's concerns, or General Motors is going to have a brand new CEO in 60 days.
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Reader Comments (Page 1 of 2)
khaosmatrix 6:39PM (3/30/2009)
My only question is, why doesn't the government require any company seeking tax dollars to fire/retire its CEO?
Reply
alex 7:10PM (3/30/2009)
the problem with this thinking is that it is out of vengeance, not what's best for the company. you can't possibly say that it's better for a company to fire it's CEO without a) weighing the value of the current CEO and b) comparing it to the value of the CEO-to-be.
getting rid of the CEO doesn't fix the problem unless a better CEO gets installed. otherwise it's just a very expensive way of saying FU to the ex-CEO
guerro 9:05PM (3/30/2009)
That shouldn't be your only question. You should have a lot of questions for Barry O and this administration. You should be asking why he is trying to run GM. Why bail out GM to begin with. Why does he keep making deadlines then extending them. When will the spending and printing of dollars end. The list of questions you should have is very long.
DesiAuto 6:37PM (3/30/2009)
basically Wagoner tried to fool them one more time and failed. He has failed on so many levels it is surprising that he was not let go long time ago.
There is plenty of talent available in this superb country to replace people like Wagoner.
Let's fire ALL Wagoners from all industries and give people with brains and talent a chance who are currently not getting their dues.
Reply
guerro 9:01PM (3/30/2009)
Going to be kinda hard to do this when The One is talking about putting a cap on executive pay. How many of these "people with brains" will be willing to let GM or another large, struggling company have their talent for chump change??? This is precisely why the Govt needs to stay the hell out of private business. GM's board and shareholders should have taken care of replacing Wagoner long ago. But they didn't. But that is no reason for Obamessiah to start controlling them. It is a slippery slope once Govt starts putting its fingers in private business.
notYou 11:17AM (3/31/2009)
I can't help but notice that you want to fire everyone from every private industry, but no mention of government wags.
Call me when a government bureaucrat gets held to the same standard, or Barney Fwank (sic) gets the perp walk, or a GSE's boardmember's names are subpoena'd for 90%+ taxation, or a Wall Street firm gets denied an endless supply of funds to bail out their bad bets.
But until then, yeah - let's hang those private sector SOBs.
sw 9:22AM (3/31/2009)
Any company that took the bailout money lost it's right to completely govern itself and should now be held accountable to the taxpayers as well as stockholders. I would be happy if the administration fired each and every one of these lead anchors in the auto and banking industries.
waiownsyou 6:43PM (3/30/2009)
A little off topic, but anyone else really annoyed by that picture of McElroy being used over and over again?
Reply
Alex 9:26AM (3/31/2009)
no
jc 6:44PM (3/30/2009)
Since union bigshots are getting our government tax money they need to take pay cuts or leave also.
Reply
Sea Urchin 6:50PM (3/30/2009)
"Obama needed to show he was decisive and in control to maintain support for his efforts to provide taxpayer money to GM and Chrysler. And firing the chairman of General Motors will make it easier for the Administration to demand more concessions from the UAW."--------John, i respect you, by what is wrong with you? Has it ever occurred to you that Wagoner was a bad CEO? This guy has been a CEO for 10 years, 10 years of losing market share, 7 years of slow death and 17+ million dollars a year as a compensation+ corporate jet+corporate credit card+20 million golden parachute.
Wagoner is a CRIMINAL, as simple as that. He is a thief, a crook and a moron.
Reply
Shipey 6:55PM (3/30/2009)
And you're qualified to run GM?
Sea Urchin 6:59PM (3/30/2009)
Good comeback.
But to answer your question, Wagoner was the sole GM executive to pull for Pontiac Aztek. While most wanted it dead it was Wagoner who forced the company to build it.
I, much like everyone on Autoblog would have killed Aztek...................so therefor i am more qualified than Wagoner. So i guess that make me qualified to run GM.
waiownsyou 7:02PM (3/30/2009)
He's not a criminal/thief. He's just terrible at his jobs. I wouldn't mind my local McDonald's drive-thru specialists getting arrested though. They never get my order right!
jc 7:09PM (3/30/2009)
Wagoner is a CRIMINAL?
according to what?...Mob rule?
Be careful.AIG is losing talent because the Obama administration incited the rabble to terrorize bankers just like Hitler incited HIS fascists before WW2 to seize power.
BEWARE OF LIBERAL FASCISM.
cheezwiz 7:41PM (3/30/2009)
@ sea urchin:
Wagoner was also at the helm for the CTS-V, ZR-1, and cobalt-ss. I'd say that makes up for the sins of the Aztek.
Sea Urchin 8:41PM (3/30/2009)
JC, he failed at everything and yet somehow got paid 17+Mill a year + a golden parachute.
He killed the company and got a golden parachute.....how is that mob rule?
BigWill 8:43PM (3/30/2009)
Hey Urch, I know you've been orgasming since hearing about Obama's firing of your BFF Wagoner, but at least go over to Autoextremist.com for a balanced viewpoint from someone else who doesn't care for Wagoner.
Mobius_1 6:54PM (3/30/2009)
I say let the market run its course. If they are not competitive, they don't deserve to stay around. It would be much better for Obama to spend their money on something other than a total void that is GM. Take a page from FDR and invest heavily on infrastructure, hiring many who have been laid off by the Big 3 and other industries.
No company is too big to fail, and the more you mess with the free market, the more screwed up it's going to be.
Reply
Miguel 2:03AM (3/31/2009)
You realize that page from FDR actually worsened the true economic depression, right? That it was a smoke screen providing electricity and road access to the "rich" while the poor continued to live in the good old-fashioned way? That without surviving companies to use those roads, there's no money being poured into anything except by the government itself, which has to borrow money (that doesn't exist, because banks have no investors) or print more, leading to hyperinflation and decreased buying power, making it even harder for new companies to start? That it was WWII spurring the manufacturing base that ended the depression?
The whole socialist system is flawed. With the exception of tariffs to favor your domestic market, there should be ZERO government interference in the marketplace.