Why GM's Wagoner and Not BofA's Lewis?

Rick Wagoner got sacked. The order to fire him came straight from the White House. We have not seen that very often in US history. Possibly Mr. Wagoner deserved to get the boot. He worked pretty hard, he made progress on a lot of GM issues. Five years ago the stock was trading at 60 and the bonds looked money good. What Mr. Wagoner failed to do was to anticipate a 50% drop in annual vehicle sales from the 2006 levels of 16mm units sold to a lousy 8mm running rate so far this year. No one could have predicted that unprecedented drop in demand. If Mr. Wagoner had proposed a plan to his Board two years ago that anticipated the future more accurately the Board would have sacked him on the spot. Damned either way.


If Mr. Wagoner is to be held responsible for the collapse of the economy and its effects on GM one has to wonder what other CEO may come into the government’s cross hairs. Ken Lewis of Bank of America (BAC) has to be high on that list. If the decision were to be up to the numbers Mr. Lewis has a problem.

GM has taken $14 billion of TARP money. GMAC has another $5 billion from the Fed. The GMAC side of this will probably work out. What is at risk is the $14 billion.

Bank of America on the other hand has taken $45 billion of TARP funds. There is talk from Mr. Lewis that some of this may be paid back. Do not hold your breath. BAC’s first quarter is going to look ugly.


GM reported a loss of $31 billion for the year. That gets you your walking papers.

Mr. Lewis reported a gain for the year. He noted in his year end remarks that for the year BoA had capital market losses of $10 billion and $27 billion in credit losses. Credit losses are likely to rise for the next year. As for that ‘Full Year Profit”, well, wait for the 1st quarter report. The $2.4 billion loss in the fourth quarter does not include the full impact of the Merrill legacy positions.

Mr. Wagoner bet the ranch on an electric car. That seemed like a good idea when oil was 200% higher. As for Mr. Lewis, time will tell if his purchases of Countrywide (CFC) and Merrill (MER) were so smart.

The point of this is not that Mr. Lewis should get the axe. He should not. If we are going to fire everyone that misjudged the developments of the past 18 months there would be very few CEOs still standing. At this point America needs Ken Lewis more than Ken Lewis needs his job.

The market fell by 3% Monday. The talk was that the GM news was to blame. Bunk. The idea that GM is going to file a chapter any day has been in the market for weeks. Just look at the pricing on the bonds. What scared the money Monday was the strong-arm tactics of the White House. The growing concern is that we are spending $3-4 trillion to ‘preserve’ what we had, but at the same time we are tearing down everything that we thought was worth preserving in the first place.

Comments

[Bruce Krasting:]

dcb, Thank for your response.
You said"I know the
> merrill valuation guy refused to sign off on the valuations and resigned."
Who is this guy, When did this happen? Thanks. bk

On Mar 31 08:44 PM dcb wrote:

> If I was a stockholder I would be upset at him. It does appear he
> didn't sell toxic shit to the world and isn't a crook like many of
> the others. iT DOES SOUND like he didn't do his homework on the books
> though. It is documented that he sent his valuation expert to merrill,
> andforced them to write down the value of their assets, and then
> blackmailed the gov't for 20 bil after he decided the value of those
> assets. He did say he knew the value of the portfolio. I know the
> merrill valuation guy refused to sign off on the valuations and resigned.
> This does sound rather suspect. i.e. low balling the assets after
> agreed purchase you said you knw and then blackmailing the gov't
> with collapse of a systemic institution. Maybe he really did a good
> thing for the bank. the assets were really worth more and he got
> 20 billion. Either way doesn't look Kosher to me considering it's
> my money.

Apr 01 12:53 PM

[Teutonic Kn...:]

Old boy network, it is so obvious that you even asked.

Apr 01 12:58 PM

[Allan Frain:]

An Old Boy Network established by the Federal Reserve Act.


On Apr 01 12:58 PM Teutonic Knight wrote:

> Old boy network, it is so obvious that you even asked.

Apr 01 01:29 PM

[RickWade:]

Ken Lewis leads a bank that was profitable for 17 straight years including 2008! Because of his stellar leadership, BAC was able to do our country a favor and take over Merrill and Countrywide in the midst of crisis. Meanwhile Wagoner has been driving GM into the ground with No innovation. These two men are polar opposites.

Apr 01 01:55 PM

[Moresby:]

It is probable that Mr Wagoner is an honourable man, he left without making a fuss; I think he is the fall guy, Obama's government needs to look tough and they find the one who will give them less trouble to sack.
Why not the man at BAC? Same logic as paying bonus to those who ran up the billions of losses; the bigger mess you make, the more they will pay you to stay and sort the mess out.
Hummmm.... how does one apply for such a job?

Apr 01 02:20 PM

[mkat33:]

I read about this in a few places. I do specifically remember a Fortune Magazine article as being one of those sources.


On Apr 01 12:46 PM Bruce Krasting wrote:

> mkat33. I think you describe it exactly as it must have happened.
> Did you guess this or do you know this?

Apr 01 02:26 PM

[hwood007:]

You need to explanin what the product was and why it could not be sold. Was it a wild product or one sold by non-banks. Was it a product I would buy? Give some facts man! You may have done the best anyone could. It takes a cruel person to sell an overpriced mortgage to some one with limited income, but some one did.


On Mar 31 02:43 PM acbig1 wrote:

> I am a former BOA employee, who got let go because of a lack of production.
> The product they wanted me to sell in my market was not competitive
> enough to even tread water. They changed the program 4 times in 4
> years and eventually gave up. Two years after I got the axe, they
> eliminated the market from their map, more or less admitting they
> could not compete. Can you imagine, the largest bank in the U.S.
> could not compete with other major national banks? Anyway, the bottom
> line is, I am out. So tell me again why Ken Lewis is still a the
> BOA helm?

Apr 01 03:11 PM

[Fabien Hug:]

In what shape is this country if it needs Lewis more than Lewis needs it?

Apr 01 04:20 PM

[bcncv:]

There's no doubt that Lewis made some big mistakes. Just remember that his biggest mistake (Merrill acquisition) was done at the request of the government.

I don't give him a pass on the aquisition, but I still wouldn't fire him for blinking when Paulson held a gun to his head.

On the other hand, Wagoner has personally been a part of destroying GM. They haven't posted a profit since 2004, or done anything to significantly change their operations. It has been so mismanaged that I think the government actually could run GM better than it's being run now.

Apr 01 06:25 PM

[hksche2000:]

Bruce Krasting, what planet are YOU living on?
Read Elcopone's comment (v.s.). He's got it exactly right!
Wagoner should have been fired by his Board y-e-a-r-s ago. He should/could have imported his own GM-Opel small cars (like the Astra) over here or -better!- manufactured it at Detroit, for starters. But he had to, but didn't hear his fellow Americans screaming for fuel efficient and, yes, smaller cars. The same Americans who bought the VW bug, not exactly a luxury limosine, like gang busters back then. You must listen to your customers (like VW, TOY et al do), or no bailout can ever save you.

Apr 02 05:12 PM

[Bruce Krasting:]

Elcapone, My point is that we can not sack everyone who made a mistake. They did that in the French revolution. They just cut off their heads. I do not think the White house should be firing folks. I think Boards of directors should do that.


On Mar 31 01:28 PM elcopone wrote:

> You write, "If Mr. Wagoner is to be held responsible for the collapse
> of the economy and its effects on GM..."
>
> Hold on a second, Wagoner was not fired because of the economy.
> That is an absurd notion and puts a major hole in your argument (which
> I'm actually still trying to figure out what you are arguing). He
> has been with GM for 30 years and was CEO for over 9 years. In the
> time he was CEO, GM lost market share year after year, lost the corwn
> of world's largest automaker, pushed Hummers as if they were the
> best thing ever, spent more time in washington and on private jets
> than he did at his own factories, and infamously said that hybrids
> "were not worth investing in" and focused resources on trucks and
> SUV's. In 2005, a year when the auto market was great, GM lost billions
> under his command. You seem to be forgetting that he was CEO for
> 7 years of economic prosperity before the economic collapse.
>
> I'm not sure the point you are making here, but saying that these
> two CEO's are being evaluated based on the economy is not holding
> them accountable to the management decisions (blunders) they actually
> made.

Apr 03 07:10 AM

[Bruce Krasting:]

Bad. Very bad. That is the problem.


On Apr 01 04:20 PM Fabien Hug wrote:

> In what shape is this country if it needs Lewis more than Lewis needs
> it?

Apr 03 07:12 AM

[Bruce Krasting:]

I actually come from the planet Orc. I did not defend Wagoner. I was trying to make the point that the White House should not be doing the firing. I did read elcapone...


On Apr 02 05:12 PM hksche2000 wrote:

> Bruce Krasting, what planet are YOU living on?
> Read Elcopone's comment (v.s.). He's got it exactly right!
> Wagoner should have been fired by his Board y-e-a-r-s ago. He
> should/could have imported his own GM-Opel small cars (like the Astra)
> over here or -better!- manufactured it at Detroit, for starters.
> But he had to, but didn't hear his fellow Americans screaming for
> fuel efficient and, yes, smaller cars. The same Americans who bought
> the VW bug, not exactly a luxury limosine, like gang busters back
> then. You must listen to your customers (like VW, TOY et al do),
> or no bailout can ever save you.

Apr 03 07:14 AM

[Bruce Krasting:]

Sorry bac gave you the boot. If I may ask what was it you were doing? Mortgage related?


On Apr 01 03:11 PM hwood007 wrote:

> You need to explanin what the product was and why it could not be
> sold. Was it a wild product or one sold by non-banks. Was it a
> product I would buy? Give some facts man! You may have done the
> best anyone could. It takes a cruel person to sell an overpriced
> mortgage to some one with limited income, but some one did.

Apr 03 07:17 AM

[Bruce Krasting:]

tks. bk


On Apr 01 02:26 PM mkat33 wrote:

> I read about this in a few places. I do specifically remember a
> Fortune Magazine article as being one of those sources.

Apr 03 07:18 AM

[Bruce Krasting:]

I am not sure they ar polar opposites but I agree with you that they are different. My point was that Lewis is at risk of getting fired by the White House. That should not happen. The shareholders and the board should do that.

On Apr 01 01:55 PM RickWade wrote:

> Ken Lewis leads a bank that was profitable for 17 straight years
> including 2008! Because of his stellar leadership, BAC was able
> to do our country a favor and take over Merrill and Countrywide in
> the midst of crisis. Meanwhile Wagoner has been driving GM into
> the ground with No innovation. These two men are polar opposites.

Apr 03 07:21 AM

[Teutonic Kn...:]

Bruce,

Clearly, in the case for GM, the BOD themselves are part of the problem.

So why would you think that they (BOD) would be able to do just what you recommended?

Appreciate your honest feedback in advance.

Teutonic


On Apr 03 07:10 AM Bruce Krasting wrote:

> Elcapone, My point is that we can not sack everyone who made a mistake.
> They did that in the French revolution. They just cut off their heads.
> I do not think the White house should be firing folks. I think Boards
> of directors should do that.

Apr 03 10:23 AM

[User 382113:]

I think the same group that got george w. in power is responsible for the meltdown on wall st. It was a pre-meditated act that was within the
common law framework. As an investor,I don't know what to believe under the current system. It would restore my confidence with a management change at the highest level. Mr. Wagner has been on the wrong track for years and Mr. Lewis should be replaced.
If you want a perspective, refer to zietgeist.com and download addendum, no cost.

Apr 03 10:38 AM

[Teutonic Kn...:]

hksche,

I guess Wagoner sensed it that they (the unions and other Detroiters, etc) won't like importing the Opel which was and still is a success. The good old NIH syndrome is alive and well, you'd know.

Teutonic

On Apr 02 05:12 PM hksche2000 wrote:

> Bruce Krasting, what planet are YOU living on?
> Read Elcopone's comment (v.s.). He's got it exactly right!
> Wagoner should have been fired by his Board y-e-a-r-s ago. He
> should/could have imported his own GM-Opel small cars (like the Astra)
> over here or -better!- manufactured it at Detroit, for starters.
> But he had to, but didn't hear his fellow Americans screaming for
> fuel efficient and, yes, smaller cars. The same Americans who bought
> the VW bug, not exactly a luxury limosine, like gang busters back
> then. You must listen to your customers (like VW, TOY et al do),
> or no bailout can ever save you.

Apr 03 05:33 PM

[Teutonic Kn...:]

User 382113,

Echoing your comment, and please excuse me in advance, I couldn't help dishing out one last snipe at the poor guy. (I solemnly declare this would be TK's last on him).

"georgie w" is a nice and decent fella that excelled in shaking hands and patting on shoulders of athletes at the 2008 Summer Olympics. He shined!

But as far as running this ultra superpower that had surpassed all other nations in the history of mankind as the United States, he was probably fit in the League of a Texan small town Sheriff.

I predict that many decades in the future scholars will look back and re-discover the case at hand. You know what? Surprise! They would have to thank such a wonderful set-up by the Republicans by precipitously ushering the U.S. into a key turning point in its history.

Teutonic

On Apr 03 10:38 AM User 382113 wrote:

> I think the same group that got george w. in power is responsible
> for the meltdown on wall st. It was a pre-meditated act that was
> within the
> common law framework. As an investor,I don't know what to believe
> under the current system. It would restore my confidence with a management
> change at the highest level. Mr. Wagner has been on the wrong track
> for years and Mr. Lewis should be replaced.
> If you want a perspective, refer to zietgeist.com and download
> addendum, no cost.

Apr 03 05:54 PM