Wagoner, Panic, & the Carpocalypse

Many feel it was almost as if the almighty god, Zeus, perched atop Mount Olympus had casted his angry hand upon the automotive industry on Sunday. The news, like a flash of lightening, shocked many here and around the world. How could General Motor’s 32 year veteran and CEO Rick Wagoner be stricken down without any warning? The even more shocking question, why was this done by our president? As the news of the Obama administration’s request for Wagoner’s resignation began to spread, so did these exaggerated allegations and analogies.

For instance, Michigan’s governor, Jennifer Granholm, called Wagoner a “sacrificial lamb,” a symbolic concession to public rage ordered by a president who had to look tough after being blindsided by the A.I.G. bonuses. All of the crisis aside, I’m finding its encompassing rhetoric to be very amusing. Many are completely lost and are looking at this in the wrong light. Instead of acknowledging the gravity of Wagoner’s mistakes and the necessity to remove him from his reign over GM, many are too caught up in flaming the president for his administration’s decision to request that a CEO should step down from a company, which it, nonetheless, almost destroyed.

Of the many things which bother me the most, none compares to the sympathy which Rick Wagoner has been receiving lately. After going through 17.4 billion dollars of federal aid approved by the Bush Administration, Wagoner came back to Washington and requested another 16.6 billion more. Though many thought the Obama Administration should refuse this second request, the president decided to hear them out. Pledging his allegiance to the auto industry, the president made it clear that he would do everything in his power to help them because he felt it was in America’s best interest that they survive.

After witnessing the lack of direction of both General Motors’ and Chrysler’s with the spending of their previous loan, along with their inability to adapt with foreign competitors, the president decided to be cautious with any new loan to the auto industry. Rightfully so, he decided to have the automakers present a viability plan that any new loan would be contingent on. The president gave them the deadline- the end of March, and appointed an auto task force to oversee that they restructure. This was Wagoner’s chance to prove that he still could turn things around.

Of all of Wagoner’s flaws, his biggest is his lack in tough leadership. After his ineffectiveness to negotiate any worthy concessions with the United Auto Worker’s union (UAW) in the past, it was prudent that he did so this time around. However, Wagoner refused to accept this problem. One expert told CBS News correspondent Tony Guida, that Wagoner, as recently as January, did not agree that the UAW contract was too rich. Ford on the other hand, understanding the necessity of these concessions was able to reach an agreement with the UAW in February. Wagoner justification, “Ford’s agreement wouldn’t have met GM’s needs.” Agreed, but why are GM’s needs greater than Fords’? This question can be answered by understanding the mistakes of GM management under Wagoner’s leadership.

Many of GM of problems went unaddressed. Although some of them were inherited by Wagoner, he never did much to correct it. In contrast to Ford, which only has 3 full line divisions, GM has 8. Ford understood its market share and refused to become a bloated company unlike GM, which poured its money into developing brands that destructively duplicated already existing models. Nothing changed under Wagoner’s term. Instead Wagoner became known as the guy who killed GMs electric car the EV1. He was also was known as the guy who became dependent on gas guzzling trucks and SUVs, surrendering its once profitable car market to the Japanese.

Where’s the leadership? Since 2004, GM under Wagoner has lost $84 billion, has seen its stock plummet from $70 to under $3, and has dropped its market share from 33% to 18%. Nonetheless, it still cannot come up with an acceptable viability plan for its future. President Obama said, “He will not tolerate failure,” and means it. And another thing, he himself did not fire Rick Wagoner; his administration requested that he resign. It was Wagoner himself who made the choice to step down not before negotiating a $20 million severance package from the company which he helped bring to its knees.

Change in such a substantial industry is very tough to accomplish. General Motors would not have been able to make these decisions on their own. The status quo and the bureaucracy in place would not have allowed for it. The auto task force knew this and was justified in removing GM’s CEO and some of its board members. I have always believed that a change of corporate culture is necessary for the auto industry. Please do not spite the government’s attempt to do what it needs to do to ensure our investment of auto industry is protected. For those who believe that Wall Street is off the hook, I would pay close attention in the future, because this administration hears what you are saying. Lastly, put your fears to rest and have faith in the American auto industry. It is clear that the Obama administration is committed to it. Through bankruptcy or not, consumers and suppliers will be protected, and automakers will emerge better and stronger.


http://www.nytimes.com/2009/04/05/opinion/05rich.html

http://www.nationalpost.com/cars/story.html?id=1486200&p=1

http://www.news.com.au/heraldsun/story/0,21985,25295720-664,00.html

http://www.nationalpost.com/cars/story.html?id=1486200


http://www.cbsnews.com/stories/2009/03/29/business/main4901201.shtml

http://www.autonews.com/article/20090330/COPY/303309918/1178

http://online.wsj.com/article/SB123540074568747921.html

http://www.nashvillecitypaper.com/news.php?viewStory=66893