Dan

Calabrese

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March 31, 2009

Obama Gets One Right: GM Plan Rejected, Wagoner Gone

What did you think was going to happen when General Motors went on its knees to the federal government to be saved? Now GM Chairman Rick Wagoner is out of a job at President Obama’s insistence, and many are wringing their hands over the fact – troubling to be sure – that the president of the United States was able to force out the head of a private-sector company.

But as much as I understand the instinct to say, “I just don’t like that,” how can you argue the merits of the move itself?

Since 2004, GM has lost $82 billion. $82 billion! Wagoner deserved some credit for recognizing that GM needed to change its ways, but he could not or would not force the changes fast enough. And while GM’s apologists argue that the company was moving in the right direction before the credit meltdown that put GM sales in the tank, one wonders if it has occurred to these same apologists that it might have been a good idea not to lose $82 billion when the economy was good – thus leaving a little cash on hand to weather the bad times.

Any way you look at it, Wagoner failed as GM’s leader. It may well be that Obama’s insistence on ousting him was merely to give him a scalp to wave around, but sometimes people make the right moves for the wrong reasons. (And with this president, we’ll take what we can get.)

If Wagoner was the man to lead GM, he would have shown it in the restructuring plan he presented. It would have been a plan that got the concessions he needed from all the relevant stakeholders – bondholders, unions, creditors, suppliers, etc. – and it would have demonstrated the new operational efficiencies, the cleaned-up balance sheet and the more realistic strategy going forward to make GM profitable.

Wagoner failed – not once, but twice – to do this. He failed in December, when he presented a plan light on substance and heavy on fanciful assumptions about the future. And now he has done it again. In fairness to Wagoner, he cannot force the stakeholders to make the necessary concessions, and GM’s problems are so serious that the concessions required are draconian indeed.

But a CEO’s job is to get the key people behind the right strategy. Wagoner has demonstrated beyond any reasonable doubt that he is incapable of doing this. Even worse, Wagoner insisted over and over again that the one move that could untangle this whole mess – Chapter 11 bankruptcy – was “not an option.” He chose instead to come to the taxpayers hat in hand, first seeking $12 billion, then upping the request a mere two weeks later to $18 billion, then ultimately informing the White House that it would need to boost its total borrowing from the taxpayers to more than $32 billion in order to survive.

Had GM filed Chapter 11 in November, it would now be well along into the reorganization process. Why not do this? The only argument ever offered against it was that consumers would not buy cars from a bankrupt company. But neither of the reasons they would supposedly not do this holds up. One was over concern that they could not get parts and service, nor get their warranties honored. Obama took care of that yesterday by announcing that the federal government would guarantee all of the above. That could have been done in November.

The second reason? Because bankruptcy carries a nasty stigma. Right. Because we wouldn’t want GM looking bad. Much better to come before Congress begging for a taxpayer bailout and air your dirty laundry about how poorly you’ve run your company for the past generation. No one will think ill of you then.

Much is still worrisome here. Up until January, Obama had never run anything bigger than a Senate staff. Does he know how to structure an automotive manufacturer? Do the people working for him know? What will his priorities be? In his announcement on Monday, he said nothing about the need for further labor union concessions, but plenty about fuel-efficient cars. Is that really the top priority? And Obama intends to use tax-incentives to lure people to buy cars, which completely ignores the fact that, for many consumers, the decision not to buy a new car is a highly rational one.

But at least the president didn’t simply rubber-stamp a weak, unserious plan. He deserves some credit for that. It would be better news if we could identify even one serious person in this entire process who knows what to do and is willing to do it. But the only person who fits that description is probably a bankruptcy judge, and as of now, that’s the one person no one will allow to step in.

© 2009 North Star Writers Group. May not be republished without permission.

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