Ousting Rick Wagoner Won't Solve GM's Problems 45 comments
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By most accounts, Rick Wagoner was never really the problem.
It’s self-evident that he presided over the demise of General Motors (GM) since taking over as CEO in 2000. The company has lost money for four years straight, and is only alive now thanks to government aid that could grow to $40 billion in total.
But GM is in a hole that took decades to dig, and Wagoner has helped position the company to crawl out. Someday. He’s cut billions in costs, closed 12 factories, slashed payroll by more than 100,000 workers and overseen a restructuring plan that calls for winding down half of GM’s eight divisions. “If he has one flaw, it's that he hasn't done it all fast enough,” says William Holstein, author of Why GM Matters. “He might not be enough of a sonofabitch.”
The Obama administration is looking for somebody who is. So with the government poised to pledge billions more to GM, Wagoner is headed for an early departure, signaling the end of the old regime. His resignation gives President Obama the chance to install fresh management less captive to a bureaucracy so hidebound it could rival the Pentagon’s. And it gives Obama a bit of cover for investing more taxpayer dollars in a company whose own auditors doubt its ability to survive.
But turning GM around is one of the hardest jobs in America right now, and putting a new driver behind the wheel won’t make the road ahead any smoother. Here are the most daunting challenges Wagoner’s successor will face:
Getting labor unions and creditors to make historic concessions. Each group is fighting to protect a stake that’s rapidly falling in value. GM wants its creditors to exchange $28 billion in bonds for stock that would be worth about one-third as much. And it wants to fund a healthcare plan for retirees with stock instead of the cash it’s obligated to pay now. Both groups have dug in their heels - partly because any stock they receive could end up worthless if GM declares bankruptcy. The government has made future aid contingent on GM getting those concessions, leaving the next CEO with a thorny set of negotiations that must be addressed the moment he walks in the door.
Drastically shrinking the company. After resisting for years, Wagoner finally agreed to sell or close the Hummer, Saab, and Saturn divisions, while transforming Pontiac into a niche nameplate. By 2012, the company plans to close another 14 plants and cut another 20,000 U.S. employees. But even that may not be enough. Some critics think GM is still relying on unrealistic projections for a rebound in car sales, and for stabilizing its U.S. market share at about 20 percent, just a point or two below where it is now.
If so, new management may have to cut even further, perhaps killing Pontiac altogether and possibly targeting Buick as well. But it’s very expensive to kill divisions and close factories, and the new boss will have to figure out how to take huge additional writeoffs as cash flow dwindles.
Shedding dealers. GM has too many dealers, too. Some have been in business for decades and are no longer in desirable locations. In some cities, overlapping outlets effectively leave GM competing with itself. The automaker is trying to cut its dealer network from 6,000 stores to about 4,700 by 2012, but that too is a complex process, since many states have franchise laws that protect dealers and make it hard to shut them down. The alternative is to buy them out – with money GM doesn’t have. This problem may turn out to be even tougher to solve if the new boss decides GM must shrink more aggressively.
Protecting quality. One bright spot for GM has been a steady improvement in the quality of its new models, with vehicles like the Buick Lacrosse, Cadillac CTS and Chevy Tahoe earning high marks in the latest J.D.Power dependability study. With intense cost-cutting, quality could easily slip. GM’s financial troubles have already made it a damaged brand. If that trickles through to GM’s cars, it could be disastrous.
Keeping up with technology. The Chevy Volt plug-in could recapture a bit of technological leadership for GM – if it works as advertised and the automaker doesn’t cut corners. Even under the best-case scenario, however, GM will face intense competition from Toyota (TM) and Honda (HMC) – which already dominate the market for hybrids – and other automakers hoping to gain an edge with electric cars, hydrogen-powered fuel cells, and other technologies that could power cars in 10 years. Deep cuts in R&D could leave GM even further behind in a decade than it is now.
Reassuring buyers. Consumers don’t need GM. No GM vehicle enjoys a monopoly or anything like it. If GM disappeared tomorrow, its customers could buy similar models from Ford (F) or Toyota or Nissan (NSANY) and be no worse off. GM already faces huge hurdles luring buyers back into showrooms. If consumers sense any more disarray at the staggering giant, they’d have good reason to spend their money elsewhere. So GM’s next CEO doesn’t just need to be a turnaround whiz, he also needs to be a supersalesman. And maybe a magician.
Disclosure: no positions
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nobody else in any of the Big Three was ever able to control the
exorbitant labor rates of the UAW, rates which Obama the Hyprocrite was praising just a few years ago. The best and only way to control the uato union is for there to be but one Big Three left - that way the union will be matched against a foe equally monopolistic with respect to American labor. Saving Chrysler years ago as an indepdendent company was obviously a big mistake by the Feds. It should have been rolled into the other two American automakers, paving the way for a means to control the UAW.
Make no mistake - the UAW is the reason that GMM is failing. And faulting GM for quality at a period over the past few years in which they have racked up an impressive redord indicates that this auto task board is simply out of touch. Also their brainless idea that building small (money-losing) cars would have been a good business strategy makes my laugh out loud. They are boobs, who now have reported to their main boob. As for the littany that GM has "too many brands" I'd love to hear an explanation of how eliminating some will bring about anything significant in terms of cost savings. Those "too many brands" were actually largely simply different models of the same vehicle, produced on the same assembly liones by the same workers, sold by the same salesmen and the same dealerships. Who cares whether a car is called a Buick Regal rather than an Olds Cutless? Does anybody really believe that GM is going to save anything beyond what they lose by eliminating a couple of nameplates? That about all those diivisions represent. Totally mindless people at work here.
Beyond talks about quality, styling, cafe standards and all the rest. GM is and has been a welfare company for Rick Wagnors' entire tenure at the helm. Paying retires and employees health benefits is where all, if any, profits have gone for years....and what did RW do to solve that problem? I mean come one 8 years! It's amazing to me people are defending RW when he had 8 years too solve that problem but our president has been in office less than 100 days and some are calling for his HEAD because the economy isnt "fixed"..and he isnt doing enough or the right things.......hilarious.
BTW: where are all you republicans screaming CAPITALISM?...where have you gone? Umm...capitalism was dead the min banks and automakers asked for money...DUH! What is this...leave us alone, don't regulate us...let capitalism work (well...until we run our company into the ground....SOCIALISM...... US THE MONEY" Capitol Hill i.e. taxpayers!
For the record im a libertarian,
WAKE UP PEOPLE!
ground....HELLO SOCIALISM...... "SHOW US THE MONEY" Capitol Hill.... i.e. taxpayers!)
On Mar 30 01:06 PM User 385544 wrote:
> GM's brand is tarnished.....rightfully so or not....GM is NOT viewed
> as a quality vehicle ...and that my friends is the kiss of death.
> Ask a CEO or marketing exec how important brand recognition is. Perception
> is reality folks...sorry!
>
> Beyond talks about quality, styling, cafe standards and all the rest.
> GM is and has been a welfare company for Rick Wagnors' entire tenure
> at the helm. Paying retires and employees health benefits is where
> all, if any, profits have gone for years....and what did RW do to
> solve that problem? I mean come one 8 years! It's amazing to me people
> are defending RW when he had 8 years too solve that problem but our
> president has been in office less than 100 days and some are calling
> for his HEAD because the economy isnt "fixed"..and he isnt doing
> enough or the right things.......hilarious.
>
> BTW: where are all you republicans screaming CAPITALISM?...where
> have you gone? Umm...capitalism was dead the min banks and automakers
> asked for money...DUH! What is this...leave us alone, don't regulate
> us...let capitalism work (well...until we run our company into the
> ground....SOCIALISM...... US THE MONEY" Capitol Hill i.e. taxpayers!
>
>
> For the record im a libertarian,
>
> WAKE UP PEOPLE!
But apart from that, it's no surprise that GM got a new CEO and board. What's the surprising thing is that existing stockholders and bondholders didn't seek replacement of the top echelon years before this point.
When your company is organized as if it still commands a 60% market share, and has losses for four years, a 110:1 debt/worth ratio, negative FCF for 24 consecutive quarters, and has to publish a 700 page 10-K to 'explain itself,' you've got a company with serious problems.
Let's hope the new board doesn't sit on its hands like the old one did. Seems to me like they will need to become as involved in the negotiations as the CEO, because there are too many players at the trough wanting to get fed.
A prepackaged 11 would help, but just to get the players to talk to each other. I can see the bondholders' reluctance to swap debt for equity if there's uncertainty about whether the equity would be wiped out in bankruptcy. Perhaps a cash settlement haircut for the bondholders, the government taking over the healthcare obligations, and the company selling off some of the unused real estate and assembly plants that will be shuttered could be a first step.
Opel is on the block, Saab is on its way, Pontiac and Hummer are gone, Saturn is ready to fall--there's some cash there, to be sure.
It would sink one of the dealers here in Northern NV-he sells Hummers, Saturns and Pontiacs. But that's life in the fast lane.
The only car companies that are on the brink of bankruptcy are manufacturers that use UAW labor. Doesn't anyone see a pattern here?
The Big 3 need to declare bankruptcy if they ever want to be competitive.
Why are banks reluctant to participate in these programs? Participating means a huge hit to the already minuscule capital at banks because they will be marking down a lot of their artificially high book values. This will mean capital injection by the government and shareholder dilution. On the other hand, the governments likes it and will be willing to provide capital because it potentially means the poison is out of the system and financials are healthy again (supposedly).
As I write this article, the S&P 500 is down 3.37%. The market is definitely showing its disapproval of this fierce government intervention. However, can we really oppose such action if we have been relentlessly waiting for the invisible hand to save us from this free-fall? Keynes was smart because he realized that there is a good reason why this hand was called the “invisible hand.” We can’t see it!
Estimated industry sales of 9 million for 2009, is the driving force for every issue that GM faces.
On Mar 30 02:45 PM robert.b.ferguson wrote:
> Now on the drawing board:Congressional Motors (seekingalpha.com/symbo...)
> 2011 Obama SUX6000. Dual pedal power and battery operated. On alternate
> Saturdays you can even use the internal combustion engine (Optional).
> Assuming you can afford fuel after cap and trade.
On Mar 30 03:10 PM Keynesian09 wrote:
> The Chinese have an old saying, “Kill the chicken to scare the monkey.”
> The chicken is GM’s CEO, Mr. Wagoner. The monkey? CEOs of financial companies in the US. By ousting Mr. Wagoner, President Obama sent a strong message to the monkeys of US financials...
JD Power measure of quality is the VDS (vehicle dependability study). "The study, which measures problems experienced by original owners of three-year-old (2006 model year) vehicles, has been redesigned to include 202 different problem symptoms across all areas of the vehicle. "
So Detroit and JDP consider the dependablity of a 3 year old car (35K-50Kmiles) the best measure of quality? What a crock. Reliability is the best measure of good engineering, something Detroit solely lacks. When they start making cars that run 250K miles with basic maintenance, like Honda & Toyota, I'll become a believer. Toyota used to desribe this as life-cycle costing. Detroit invented planned obsolescence, so don't hold your breath.
When is Obama going to do the same as Wagoner to the heads of the big investment banks and break them up into entities not to big to fail. Hope he's just waiting for the right moment.
On Mar 30 06:52 AM atlasman wrote:
> Pre-pack ch11 is the only solution. Solves the tough negotiations
> problem and allows for the massive restructuring this company needs.
> Personally, my favorite car exec is Bob Lutz, but he does not have
> the type of experience needed for this type of operation. Couple
> him with a very good bankruptcy lawyer as CEO and you will end up
> with a reasonably car company.
Unions are a cancer that destroy companies. They are the greatest destroyer of working class jobs in America this past century. You only have to look at the steel, airline and car industries for proof. Wagoner needed to lay this on the table and either win or get thrown under the bus. He didn't and was thrown under the bus anyway. He's a Fool and an Idiot. He has wasted tens of billions of dollars or our money trying to stroke necessary concessions out of the greedy union scumbags that will never come unless forced. Now I have to hope Obama does it. Sheesh... fat chance.
The UAW deals were ridiculous for sure.....If i ran a business i wouldn't send someone home and pay him 95% of their pay till the cows come home......but why didn't the CEO's of these companies take a stand? CEO's of other American companies negotiate, arbitrate, lockout etc
15% union membership in this country is low, why is everyone so threatened by them? The above poster mentioned airlines, ask a pilot if he likes the fact his pay is 40% of what it was 5-8 years ago?
Most unions have little to no power anymore; the UAW is an red herring for everyone to point at....give it up already.
And of course the Obama administration knows it.
By booting out Wagoner and having lined up the other ducks necessary to make a bankruptcy seem plausible (guaranteeing car warranties, suppliers being bailed out directly and etc. etc.) the administration's task force is trying to send a message to bondholders and to the UAW that if they don't now make bigger concessions bankruptcy WILL be an option.
But one wonders whether those guys sitting on the other side of the table are good poker players or poor ones. Maybe they will just call the bluff? And calculate like this:
"If we can't get something better through negotiations over the next 60 days.....what's there to lose by letting the whole darned thing go into bankruptcy? At least that way we won't be the only ones to lose"
And is that typically such a far-fetched way to think?
It's all going to get a lot more interesting before it's all over.
On Mar 31 05:12 AM capitalisthero.com wrote:
> Obama's dismissal of Wagoner is just smoke and mirrors. It's a distraction
> with the intent of showing the public he means business all the while
> funneling money to the UAW. The UAW is way too important for the
> Democratic party for them to extract any concessions. Next up:
> Free GM cars for poor people subsidized in full by the taxpayer.
> Damn shame.
On Mar 30 12:05 PM Mad Hedge Fund Trader wrote:
> He should have gone ages ago. I’ll tell you what GM’s problem is.
> My dad was a lifetime GM customer, religiously buying a new Oldsmobile
> every five years. Once he even flew to Detroit for a factory tour
> and drove his new prize home. Thirty years ago I told him he was
> doing GM no favors by buying their cars, and the only way to force
> them to improve a tragically deteriorating product was to buy better
> made German and Japanese vehicles. This was right after the State
> of California forced auto makers to install seatbelts on new cars.
> Airbags and ABS brake systems were still years away. His response,
> “I didn’t fight the Japanese for four years so I could buy their
> cars.” (He was a Marine). GM’s problem is that my Dad passed away
> seven years ago. Of the original 17 million WWII veterans, 1,500
> a day are dying, and there are only 1.5 million left. All of them
> loved Detroit because it built great Jeeps, Sherman tanks, and half
> tracks that brought them home from harm’s way. Their kids prefer
> German, Japanese, Italian, Korean, and soon, Chinese and Indian vehicles.
> It is no coincidence that GM’s problems really accelerated with the
> passing of the “greatest generation.” During the last 35 years, when
> Japan’s share of the US car market climbed from 1% to 40%, I begged
> GM to mend their ways and build a quality, price competitive product
> that Americans wanted to buy. They answer was always the same: “Nobody
> can tell GM how to build cars.” Maybe someone should tell them.<br/>