Why Obama Was Right to Demand Wagoner's Head

Obama’s decision to force the resignation of the CEO of General Motors (GM), Richard Wagoner, has caused outrage from all sides of the political spectrum. The right have criticized Obama for interfering in the running of a private company while the left are attacking him for “betraying” General Motors. While the outrage from the left is to be expected, and there is cause for concern that the government’s interference in corporate strategy may go beyond simply removing their CEO, the decision to make the bailout conditional on Wagoner’s departure is the best policy for taxpayers and the American economy.

Critics of this decision have claimed that it violates the rule of law and have drawn parallels with the “AIG tax”. This is incorrect, since the problem with the AIG tax was that it was retrospective and included companies like Wells Fargo (WFC) which had been forced to take government money. In contrast, Wagoner (and GM’s shareholders) had the option of declining the money, and facing the consequences. Indeed, the whole point of this maneuver is to discourage unnecessary demands for bailout funds. Had this plan, which bears strong similarities to the “Volcker Doctrine” of the 1980s, been implemented last autumn, banks might have had second thoughts about the desirability of government support.

Of course, the proper solution would be let General Motors sink or swim on their own two feet. However, given that a free market solution is (sadly) impossible in this political climate, the dismissal of Wagoner is a step in the right direction. Critics of the bailout need to ensure that any government intervention is as short lived as possible, and doesn’t become permanent, rather than attacking one of the few things that the Obama administration has managed to get right.

Comments

[Douglas Kor...:]

Getting rid of Wagoner is IMPORTANT and VITAL.

Wagoner did not have the gumption to fire White Collar execs who made critical mistakes, such as the "Fiat Fiasco", the crushing of the EV1, GM arresting its own customers, and betting on the wrong cars.

It's not the line workers fault, even the engineers are innocent: Wagoner (and his corps of yes-men, bimbos and buddies) was the problem. Good riddance; now perhaps GM can be forced to produce an Electric car, which we drive every day -- the Toyota RAV4-EV.

Surely, GM can make this EV using proven Nickel Metal Hydride batteries, it has a 120 mile range as an EV (add a small genset, it's an instant super-VOLT).

We don't need research, we need PRODUCTION.

2009 Mar 31 05:12 AM

[CautiousInv...:]

I am not apologist for Obama but he was running out of options.

Wagoner has continually been behind the curve and has been unable to effect or suggest policies to make GM viable in the long-term. Additionally, he lost credibility with the administration owing from delays or inability in submitting credible restructuring plans. Financial assumptions have been all over the board.

The task force ... said Monday that G.M. had to drastically pare the broadest lineup of products offered by any car company.

“G.M. has retained too many unprofitable nameplates that tarnish its brands, distract the focus of its management team, demand increasingly scarce marketing dollars, and are a lingering drag on consumer perception, market share and margin,” the task force said in its report.

GM has 60 days to force greater concessions out of its debt holders and other parties and to find new ways to deal with its shrinking market share.

Obvious to almost everyone is the need for GM to streamline its product offering while concentrating upon the most profitable unit sales with the highest growth potential. Instead of cutting eight brands down to four in the United States, G.M. may be left with Chevrolet and Cadillac.

2009 Mar 31 08:05 AM

[Miken:]

Oh great another auto expert from that hot bed of automotive excellence, England.

2009 Mar 31 09:25 AM

[henarl:]

Let's not feel sorry for Wagoner. He took 23 million of my (and other taxpayers) dollars with him when he went out the door. And I'm sure he's still on the Boards of Directors of several other corporations with fat Director's fees. Also, he will probably land another high paying executive slot somewhere else. The good old boys club always takes care of their ownj.

2009 Mar 31 06:40 PM

[Old Trader:]

I'm certain compelling arguments can be made both pro and con, re: Wagoner's firing. The thing that I find most troubling is that there seems to be something of a "double standard" at work here. Why was Wagoner fired, while the heads of wayyy too many large banks are still showing up every morning, and drawing a paycheck?

I dare say, that in terms of damage done to the economy, many bankers are MUCH more culpable than Wagoner. Would the fact that Geitner and Summers are "counseling" Obama have anything to do with it?....Naaaaahhhh..that would be WAY too cynical...

2009 Mar 31 07:44 PM

[John Tandlich:]

What everyone is forgetting in the cases of GM, AIG and the banks is that the government/taxpayer money were in the form of loans and guarantees and does not represent a common equity ownership stake. It does not confer any right to dictate day-to-day decisions unless expressly stated at the beginning, which the Bush and Obama administrations neglected to do.

2009 Apr 01 02:08 AM

[Moresby:]

If the CEO should go, it should be the board of directors who ask him to go; the Obama government by doing what they did has assume responsibility for the company.
If getting rid of Wagoner was a good thing, how can leaving the board of directors in place be a good thing too, surely these people were also responsible for getting GM where it is now.
I think it is posturing and victimisation on the part of the government.

2009 Apr 01 09:27 PM