Wagoner = Wa-goner! (GM CEO Steps down at Obama's behest)

[KrauserKrauser]

Honestly, I agree that the bankruptcy/liquidation option is the only sane option as it will preserve some of the few manufacturing sectors we still possess, I just laugh anytime anyone just throws it out that the UAW contracts need to be shredded without realizing how fucking hard it is going to be to get anything resembling a sane contract out of the UAW. The UAW needs its back broken and to be effectively dissolved from it's current form, they've had decades of insane contracts and are spoiled as hell. That has no chance in hell of happening any time soon, especially with a Democrat Congress and a Democrat in the White House. Flat out isn't going to fucking happen.

I know that they can invalidate the contracts, that's been discussed many times whenever the Auto industry is discussed on the board. A forced cram down has been talked about for the car industry, the banks, etc. but that isn't what you proposed, they just need to submit a new plan. Obviously this plan won't be able to change the contracts with UAW unless we are talking bankruptcy and the courts getting involved.

Until the company is actually in bankruptcy, which I don't think the White House/Congress is willing to let happen, the UAW will cling with a kung fu death grip to their contract and the Dems won't bother getting anything meaningful out of them as they don't want to be against Main Street and definitely don't want to be seen as anti-Union.

[The Kernel]

Honestly, I agree that the bankruptcy/liquidation option is the only sane option as it will preserve some of the few manufacturing sectors we still possess, I just laugh anytime anyone just throws it out that the UAW contracts need to be shredded without realizing how fucking hard it is going to be to get anything resembling a sane contract out of the UAW. The UAW needs its back broken and to be effectively dissolved from it's current form, they've had decades of insane contracts and are spoiled as hell. That has no chance in hell of happening any time soon, especially with a Democrat Congress and a Democrat in the White House. Flat out isn't going to fucking happen.

Rewriting labor contracts may be unpopular with union voters, but letting a company suck on the government tit is unpopular with everyone.

I know that they can invalidate the contracts, that's been discussed many times whenever the Auto industry is discussed on the board. A forced cram down has been talked about for the car industry, the banks, etc. but that isn't what you proposed, they just need to submit a new plan. Obviously this plan won't be able to change the contracts with UAW unless we are talking bankruptcy and the courts getting involved.

Instant bankruptcy IS a valid option for GM to propose to the government. Companies go through bankruptcy every day, and as long as the GM plan is solid, the US government will no doubt go along with it.

Until the company is actually in bankruptcy, which I don't think the White House/Congress is willing to let happen, the UAW will cling with a kung fu death grip to their contract and the Dems won't bother getting anything meaningful out of them as they don't want to be against Main Street and definitely don't want to be seen as anti-Union.

The government and GM could agree on a bankruptcy model that would take a single day and resolve many of the issues facing GM. The problems of GM mostly have to do with a lot of dead weight clogging up the company. Sure the UAW is part of that, but so are the twelve different brands that each maintain their own corporate infrastructure including marketing, sales, design, product, etc. GM needs to cast off the pieces that are the worst off (either via a fire sale or an outright shutdown) and consolidate around a few key brands and product lines.

Either way, in 6 months GM as we know it will cease to exist. Whether a smaller, consolidated company comes up to replace it or whether it is cut into pieces and sold off depends entirely on whether or not the management at GM is willing to make the tough decisions.

[Darth Wong]

On the other hand, since Obama thus far has consistently demontrated an appalling ignorance of what really ails the auto industry (though that's hardly uncommon in Washington these days), I wouldn't put it past him to not to appoint some political hack "outsider" to run GM.

Is it ignorance, or is it the Democrats' worst political failing, which is their long-standing allegiance to the big unions?

[MKSheppard]

Ladies and gentlemen... A moment of silence please for the Death of the American car Industry...

You'll note that Ford hasn't taken any bailout money and is in much healthier shape...So ALL HAIL FORD, WINNER OF THE CENTURY LONG AUTO WARS

[Patrick Degan]

Ladies and gentlemen... A moment of silence please for the Death of the American car Industry...

You'll note that Ford hasn't taken any bailout money and is in much healthier shape...So ALL HAIL FORD, WINNER OF THE CENTURY LONG AUTO WARS

Ford made some smart decisions over the years, one of them being to consolidate their Lincoln and Mercury divisions decades ago. They also paid much more attention to market trends than GM or Chrysler could be bothered to. In point of fact, they're ready to convert one of their existing economy lines, the Focus, to electric drive and plan to roll that out for the next model year.

[Illuminatus Primus]

So the solution is to let American manufacturing collapse, and why? Because they don't have as many boys in the Treasury Department? What is the magic plan for restarting the speculation train that the financials have produced to justify an endless credit line?

No, the solution is to do exactly what the government did which is play hardball with these people. I have no issue bailing out Detroit on the condition that they provide a viable plan to clean themselves up.

After the first bailout GM promised big changes but then came back with a half hearted plan that included cutting just a couple of their worst brands and some token concessions from the UAW. The fucking company is on its ass and GM execs were acting like all they had to do was make the appearances of getting the company to work and then rely on the government for billions. Worse yet, they dragged the issue to the public with shamelessly threatening bankruptcy if they didn't get more money.

Hopefully this latest development will get the message across that GM needs to think about a plan that will outright dissolve a good fraction of the company, totally rewrite their labor contracts, kill most of their active brands and terminate thousands of employees. It's going to suck, no one likes it, but if that's what they need to become viable then that is what they need to do.

You're missing the point. People are disgusted because Obama will have a tough upper lip and play hardball with manufacturing, but financials get BRIBED AND INSURED on the taxpayer dollar in order to keep betting. Its revolting. Why don't we cover a couple year's manufacturing from the Big Three with guarantees, because by golly, those cars just have to be worth more than they are right now - they'll sell someday. We just got to wait it out, like those toxic assets.

[J]

Clearly you are an idiot, so I'll explain this simply: GM and the US Government CAN rewrite those contracts without the UAW via the instant bankruptcy option. The UAW contacts might have been impossible to change before, but when the entire company is on the brink of liquidation, there are other options.

EDIT: And if you think the UAW is the extent of GM's issues, then you are an even bigger idiot than I thought.

Yup, only a Chapter 11 or forced cramdown will allow the contracts to be written in such a way that GM will have a future going forward. I'd imagine that even a Chapter 11 would result in negotiations being taken to the court system and tied up for years, with the end result being the demise of GM.

But that leaves aside the larger problem, the total sustainable market for cars in the US is around 12 million units a year, not the 18 million or so in recent years which was made possible only by "pulling forward" demand via cheap credit & loans. GM's business model is based on a market demand for close to 20 million cars a year which simply isn't sustainable, they will have to shut down 1/3 to 1/2 of their production, period, and terminate the appropriate number of employees & operations. They need to work out a business model which is profitable given a 12 million vehicles per year market in the US, they have not done so.

It's been my opinion from the beginning that GM needs a forced cramdown to wipe their debts & legacy costs along with restructure the company so that it's viable again, give them a clean slate so they can succeed (or fail) on their own merits.

Since we're not going to do a cramdown now, I think the best remaining option is to give them just enough money to survive until the economy starts recovering, then do the cramdown as the government will probably own GM by then. This gives GM a more favourable environment for making a new start and returning to profitability. It'll probably put $200-300 billion down the drain but that's still well under 10% of what's been paid out to the financials thus far, and I'd argue that the GM is more important to the US than all the financials which have received bailouts put together. Yes it means we'll have a zombie GM for the next 5 years or so, and I can't say I'm happy with that, but at least the problem is contained to one area unlike the our current issue with the banks & other financials.

[KrauserKrauser]

At least with a zombie GM you have machine tools that can be retooled if necessary and valuable manufacturing skills being maintained in the economy, with zombie financials you have.....

Anyone have a good answer?

[Crayz9000]

During Obama's speech, I did hear him mention the fact that they are going to "keep bankruptcy on the table" as an option for restructuring, and that he is talking about Chapter 11, not Chapter 7.

[Ma Deuce]

Is it ignorance, or is it the Democrats' worst political failing, which is their long-standing allegiance to the big unions?

In Obama's case? Well, those statements of his certainly came across as ignorant. To be honest, it could be either, or some of both, but either way, the effect is basically the same.

[open_sketchbook]

It might also be a case of priorities. Keep the financial companies afloat while riding out the consequences of whatever happens in the auto industry, then switch targets, rather than trying to force the restructuring of huge chunks of the economy at the same time and run the risk of the whole thing coming apart in one fell swoop.

What can I say, I'm an idealist.

[MKSheppard]

Awesome -- Wagoner is getting a $20 million golden parachute, due to his resignation/firing.

[open_sketchbook]

That's not a golden parachute, that's a golden private jet. Why can't we just take irresponsible CEOs and make them fight to the death for the entertainment of the masses? Hell, that would be so popular you could fuel the economy on the betting money changing hands.

Seriously, when you get $20,000,000 for fucking up so badly the President tells you to GTFO, you know there is a serious problem with the distribution of wealth in your society.

[Starglider]

Seriously, when you get $20,000,000 for fucking up so badly the President tells you to GTFO

Obama specifically said (paraphrasing) that 'this is not a condemnation of the existing CEO, who did all he could for GM, it's just that we need fresh leadership to support a new direction'. What exactly do you think Wagoner should have done differently?

[KrauserKrauser]

Oh, don't listen to him. Obviously all CEOs are the devil and not deserving of pay commensurate to their experience and responsibilities. Maybe if he had read the thread a bit he would have realized that this guy is simply falling on the sword and actually had good things going on that might have been able to address the fundamental problems given time. But fuck that CEOS ARE THE DEVIL KILL THEM ALL WITH FIRE!!!!!

[The Kernel]

Seriously, when you get $20,000,000 for fucking up so badly the President tells you to GTFO

Obama specifically said (paraphrasing) that 'this is not a condemnation of the existing CEO, who did all he could for GM, it's just that we need fresh leadership to support a new direction'. What exactly do you think Wagoner should have done differently?

Oh boo fucking hoo. I don't personally give a shit whether anyone else could have succeeded where Wagoner failed, the whole point of being the CEO is that you are taking personal responsibility for the financial viability of the company and do not get to make excuses about why you were powerless to stop the company's slide.

CEO's are paid that much because it's NOT a fair job and no issue is supposed to be beyond your control. Wagoner failed to deliver shareholder value and as such, he failed as a CEO.

[SirNitram]

I'll repeat it on the subject of the union contracts: Some contracts are more sacrosanct than others. Wall Street must be worshipped. The only part of the economy that matters is the stock market. Or so it seems in this country.

Not enough morphine in the world...

[Darth Wong]

I'll repeat it on the subject of the union contracts: Some contracts are more sacrosanct than others. Wall Street must be worshipped. The only part of the economy that matters is the stock market. Or so it seems in this country.

Not enough morphine in the world...

Sorry Nit, but those union contracts must be renegotiated. This is not a matter of conservative doctrine, but simple practicality: the contracts are unreasonable and have forced GM to maintain its labour pool at an enormous size which it cannot possibly pay for unless its market suddenly doubles: a practical impossibility.

Moreover, those contracts in past decades have actually led GM to this precipice. A longstanding policy of maintaining an excessively large and expensive labour pool forced GM to make countless compromises on car quality over the years in order to stay price-competitive. This harmed their image and damaged consumer goodwill, which further eroded their market share, thus forcing them to cut even more corners on quality and performance in order to keep paying for their massively inflated labour pool (which they could not shrink due to those aforementioned union contracts).

You can point to this particular mistake or that particular mistake as the sins of GM, but that's like a military man emphasizing the tactics of a particular battle and ignoring the larger strategic and logistical issues upon which defeat or victory in a war generally depend. The big picture in this case is that the union extorted the company into writing cheques it could not cash in the long term, and which slowly eroded its position by destroying its ability to maneuver, invest, and build quality products until it was beyond salvation.

Imagine playing a strategy game where all of your units cost 25% more to recruit and maintain than your competitors' units. Then imagine that if you manage to overcome this handicap in any given turn and do well enough to have an operating surplus for investment, your unit cost immediately goes up to completely consume this profit so you can't use it for anything else. Worse yet, your unit cost stays this high and doesn't go back down again in future turns when you're not doing as well. Prognosis: defeat.

[Starglider]

Oh boo fucking hoo. I don't personally give a shit whether anyone else could have succeeded where Wagoner failed, the whole point of being the CEO is that you are taking personal responsibility for the financial viability of the company and do not get to make excuses about why you were powerless to stop the company's slide.

AFAIK Wagoner hasn't made excuses; Obama was simply explaining the reasoning behind his decision. As for personal responsibility, he's being fired, what more do you want? The severance payment isn't a bonus for recent performance, it's effectively a form of deferred compensation for his entire time at GM (I expect it's been in place since he first got the job). While I do think CEOs as a whole are overpaid, Wagoner's compensation is actually fairly modest for a company that size.

CEO's are paid that much because it's NOT a fair job and no issue is supposed to be beyond your control. Wagoner failed to deliver shareholder value and as such, he failed as a CEO.

On the contrary, if Wagoner did the best that could be done under the circumstances (or something approaching it), then he did deliver value for the shareholders. GM's stock price held up well for the first four years of Wagoner's tenure, outperforming the stock market as a whole in fact. It dropped a bit over the next four years but arguably a lot less than it should have given GM's unavoidable underlying problems. Meanwhile GM continued to pay 50 cent/share quarterly dividends through 2005 and 25/cent share up until this year. From the point of view of someone who bought GM stock in 2000, Wagoner really did fairly well (particularly if they unloaded it in late 2007). Wagoner's only alternative, even in theory, would have been to push for chapter 11 in 2002, instead of ramping up the cheap credit and pulling sales forward. Given the climate at the time it's highly unlikely the board would've permitted that and even if he had, the shareholders would've been diluted and lost dividends seven years earlier than what actually happened (and it's debatable whether the outcome would've been any better for the company than a contemporary bankrupcy anyway).

[The Kernel]

AFAIK Wagoner hasn't made excuses; Obama was simply explaining the reasoning behind his decision. As for personal responsibility, he's being fired, what more do you want? The severance payment isn't a bonus for recent performance, it's effectively a form of deferred compensation for his entire time at GM (I expect it's been in place since he first got the job). While I do think CEOs as a whole are overpaid, Wagoner's compensation is actually fairly modest for a company that size.

This was directed at people in this thread, I'm not arguing that Wagoner's termination should have been handled any differently.

On the contrary, if Wagoner did the best that could be done under the circumstances (or something approaching it), then he did deliver value for the shareholders.

I'm sorry, I wasn't aware that you have a magical prediction engine that tells you what all the possible outcomes are for General Motors.

GM's stock price held up well for the first four years of Wagoner's tenure, outperforming the stock market as a whole in fact. It dropped a bit over the next four years but arguably a lot less than it should have given GM's unavoidable underlying problems. Meanwhile GM continued to pay 50 cent/share quarterly dividends through 2005 and 25/cent share up until this year. From the point of view of someone who bought GM stock in 2000, Wagoner really did fairly well (particularly if they unloaded it in late 2007).

It's a common misconception that "Shareholder Value" = Stock Price. Sure that's one metric, but if that's the only metric you use then Ken Lay and Jeff Skilling were excellent CEOs and anyone who bought Enron and unloaded it at $100 was done right by them.

In the case of GM, it was clear that GM had made commitments to its employee retirement and medical care that it had no ability to keep in the long term, and had a vast overstock of manufacturing capacity that was not sustainable in the long run. The fact that Wagoner was able to sweep that under the rug until credit dried up is not an excuse.

Wagoner's only alternative, even in theory, would have been to push for chapter 11 in 2002, instead of ramping up the cheap credit and pulling sales forward. Given the climate at the time it's highly unlikely the board would've permitted that and even if he had, the shareholders would've been diluted and lost dividends seven years earlier than what actually happened (and it's debatable whether the outcome would've been any better for the company than a contemporary bankrupcy anyway).

Or he could have dealt with the time bomb that was pensions and health benefits as well as selling off marginal divisions at GM and consolidating around several core brands. He then could have trimmed headcount and capacity down to make GM a much leaner and more sustainable company.

Of course you will argue that it was unfeasible for him to do this, but I will maintain that Wagoner and every CEO at GM has known that it was only a matter of time before GM imploded due to decades of excess. The fact that none of them did the unpopular thing and address it shows that they were cowards, not good CEOs.

[SirNitram]

Sorry Nit, but those union contracts must be renegotiated.

Absolutely. Do not disagree, and I apologize if I gave the impression otherwise. The problem I have is the same folks saying we can't touch the financial's extra-bonuses for running the economy into the group, because they're in the contract, and all parties rush to a metaphorical fainting room for the presumption.

Renegotiate them all, frankly. Hell, use any money left in the financials to fund modernization of GM. Keep GM, I wouldn't mind.

[Starglider]

From The Truth About Cars;

And there I was thinking that easy credit and bad loans were a main contributory factor to our current economic doldrums (aren’t euphemisms grand?). But after the Fed changed its rules at the eleventh hour (behind closed doors) so that GMAC could avoid bankruptcy and become (of all things) a bank, after Uncle Sam pumped $6B worth of taxpayers’ money into the privately-held company’s coffers ($1B of which went straight to GM), the failed “bank” has reversed its reversal of its lax lending practices and opened the taps. “We want to do our part to support both the U.S. auto industry and individuals in the market for a car or truck,” said GMAC President Bill Muir, in a prepared statement. “GMAC now finances a broad spectrum of auto buyers, similar to traditional levels.”

Traditional? Is that what they call the “anyone with a pulse” financing that GMAC generated to keep GM (and then Chrysler) in Denialand? And now, with a gentle nod to accountability-free post-modern irony, GMAC will once again loan money to car buyers with FICO credit scores below 620. It will also increase allowable advance rates (120 percent loans are back and they’re bad!). And, just for S&Gs, they’ll reduce some financing rates.

“Over the next 60 days, GMAC will make available at least $5 billion in order to increase the flow of credit to U.S. automotive customers, Muir said.

60 days. Huh. Isn’t that the exact amount of time President Obama’s Task Force gave GM to get its shit together?

Equally uh, “interesting” (especially for conspiracy theorists who connect the dots between GMAC, Cerberus and former U.S. Treasury Secretary John Snow), GMAC is suddenly getting out of the business of putting GM and Chrysler dealers out of business.

During April, GMAC will eliminate “curtailment payments” designed to collect on dealer loans on unsold inventory. Through June, GMAC will waive the fee charged to dealers for posting unsold vehicles on SmartAuction (GMAC’s online marketing site). What’s more, qualified dealers (?) can defer wholesale interest charges for two 30-day periods during the next 120 days.

I honestly don't know if this is a case of stupidity ('if we can just get through this year we'll be fine' thinking) or outright pump-and-dump fraud.