by John M. Curtis
(310) 204-8700

Copyright March 29, 2009
All Rights Reserved.

         On the eve of President Barack Obama’s new auto industry plan, General Motors Chairman and CEO 56-year-old Rick Wagoner got his pink slip from the White House.  After getting $17.4 billion from the bailout, GM burned through its cash, requesting another $21.6 billion.  Wagoner’s latest request was the straw that broke the camel’s back, causing the White House to seek his head.  Wagoner’s 31-year-old career was unceremoniously terminated, as much for symbolic reasons, after the public’s disgust with Wall Street’s CEOs getting bonuses for failure.  Whether logical or not, it became impossible to retain Wagoner after GM lost $83 billion over the last four years, attributable to making bad decisions.  While Wagoner would like to blame GM’s problems on the recession, the company faces mounting problems for making undeniably poor choices.

            With the possible exception of GM’s Saturn Division, the rest of lineup overestimated the appeal of gas-guzzling SUVs, now rusting at dealerships around the country.  While high gas prices didn’t help, Wagoner helped build successful divisions in China, Russia and Brazil.  He couldn’t see the wisdom of expanding production of his popular fuel-efficient Opel Division, currently among the best-selling cars in Europe, sold under the Vauxall name in the U.K.  While Americans craved fuel-efficient cars and GM Opels sold like hotcakes in Europe, Wagoner continued to misread consumers’ needs.  “I’m not necessarily sure it’s the best idea for Wagoner to leave now,” said Aaron Bragman, an industry analyst with HIS Global Insight.  “Your changing captains in the middle of the rapids here,” said Bragman, not getting the benefit of making someone at GM stand accountable.

            Whoever leads GM, they need to see the urgency of joining forces with a well-capitalized auto company.  When Nissan took a stake in France’s Renault in 1999, skeptics dismissed the partnership as sacrificing a well-know French brand.  Ten years after the merger, Renault has some of the best-selling fuel-efficient cars in Europe.  With GM’s Opel Division already successful in Europe, bringing the line to the U.S. would have been a no-brainer while they move ahead with Wagoner’s pet-project of GM’s soon-to-be released plug-in Volt.  Electric cars, while important, will still need other conventional vehicles before the technology evolves.  Speaking on CBS’ “Face the Nation” with Bob Schieffer, Obama reflected on GM.  “They’re just not there yet,” referring to GM’s unpopular product lines.  Asking for Wagoner’s head, Obama signaled he means business in Detroit.

            GM must swallow its pride and consider joining forces with Toyota, Nissan or possibly Volkswagen.  If Nissan helped Renault, GM could benefit by guidance from a successful foreign competitor.  Toyota, Nissan and Volkswagen all manufacture popular cars for U.S. consumption.  Under their direction, GM would begin to build state-of-art vehicles as they currently do in Europe, China, Brazil and South Africa.  When Wagoner took over GM’s North American operation in 1994, GM held 33% of the U.S. market.  GM fell to 22% in 2008.  Under Wagoner’s direction, the company hasn’t made money since 2004, losing $38.7 billion in 2007.  Wagoner developed the Pontiac Azteck in 2000, an ugly-looking SUV that went over like a lead balloon.  Retaining Wagoner in the new GM would send the wrong message to a company looking for new life, a fresh start and a bright future.

            Obama administration officials announced March 30 that GM and Chrysler would not receive new bailout money without dramatic restructuring, prompting new worries about bankruptcy.  “The fact there’s still a chance of GM going bankrupt is shocking,” said Takashi Ushio, head of the investment strategy division at Marusan Securities in Japan.  While GM shareholders have already been practically wiped out, a bankruptcy would decimate what’s left of bondholders and creditors.  “We believe our approach to GM is starting with a clean sheet of paper,” said an unnamed Treasury Dept. official, hinting that Chapter 11 may be next.  Saddled with debt and union contracts, bankruptcy would allow GM and Chrysler the best chance of long-term recovery.  U.S. officials have urged Chrysler to allow Italy’s Fiat to take a 30% stake, providing cash and essential restructuring.

            Booting out GM’s Wagoner was the first step in what will no doubt be a painful restructuring of the once crown jewel of American industry.  GM officials under obsolete management and crushing weight of existing contracts cannot recover without the pain of bankruptcy.  Obama officials realize you can’t keep throwing good money after bad, pressing a step closer to the inevitable.  Like Chrysler, GM, too, will have to find a new, more well-capitalized partner like Toyota, Nissan or Volkswagen.  Giving GM another $16 billion would throw more money down a rat hole.  Losing $82 billion since 2005 proves that GM is already unofficially bankrupt.  Bankruptcy brings new management, government help and hope for GM’s eventual rise from the ashes.  Postponing the inevitable only delays GM’s chances of becoming an innovator and industry leader.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

©1999-2002 Discobolos Consulting Services, Inc.
(310) 204-8300
All Rights Reserved.