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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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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Autoline Detroit
Airs every Sunday at 10:30AM on Detroit Public Television.
Autoline Detroit Podcast
Click here to subscribe in iTunes
Follow Autoline on Twitter for ongoing updates every day!
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