White House tells GM boss to step down

[Martinus]

Is it just me, or is there a strange divide in the tone between the way Obama handles the auto companies and the financial companies?

It's just you.

Comparing these two bailouts makes little sense.

The auto companies' troubles are essentially "business as usual" when it comes to state aid - they got into the trouble not because of the international financial markets' upheaval, but because they simply suck at what they do and their products did not sell during the time of the boom either. The rules against state aid and protectionism were made to prevent exactly the situations like helping the likes of GM and Chrysler - by propping up "national champions" who are financially unsound and thus distorting international competition.

Besides, as big companies as they are, the fall of GM or Chrysler will be a relatively small ripple in the overall economy.

Neither of this concerns applies to the bail out for the financial industry. While some of the banks may be to blame for the extent of the crisis we are having, none of the could really prevent it on its own or "sell better products" and thus escape the upheaval. And besides, if they would fall, they would take most of the economy down with them.

[Caliga]

I guess this isn't too surprising, but GM's problems are systemic, and maybe not this guy's fault? Except if he's not putting through enough change and restructuring while the corp is in serious financial problems, and getting govt bailouts.

Of course they aren't his fault.  The White House just needs a scapegoat in this case.

[Faeelin]

The auto companies' troubles are essentially "business as usual" when it comes to state aid - they got into the trouble not because of the international financial markets' upheaval, but because they simply suck at what they do and their products did not sell during the time of the boom either. The rules against state aid and protectionism were made to prevent exactly the situations like helping the likes of GM and Chrysler - by propping up "national champions" who are financially unsound and thus distorting international competition.

Besides, as big companies as they are, the fall of GM or Chrysler will be a relatively small ripple in the overall economy.

Two million more unemployed doens't seem like a small ripple in an already deep recession.

Moreover, it's hard to say that GM is failing because of a poor product, even dring boom times, it's a bit rich to say that "None of the could prevent on its own" the problems. Sure, but the fact that there was a systematic failure within an industry doesn't make me think they weren't failing just because they made a profit based on an unsustainable bubble.

[Martinus]

The government is not in the business of helping badly managed companies get out of their financial problems.

We live in extraordinary times, vis-a-vis the financial industry, and this calls for extraordinary measures, such as the bail out for them.

It does not mean we should throw our principles out of the window and help anyone who is just bad at what they do with the taxpayer money.

[DGuller]

The auto companies' troubles are essentially "business as usual" when it comes to state aid - they got into the trouble not because of the international financial markets' upheaval, but because they simply suck at what they do and their products did not sell during the time of the boom either. The rules against state aid and protectionism were made to prevent exactly the situations like helping the likes of GM and Chrysler - by propping up "national champions" who are financially unsound and thus distorting international competition.

That's actually not true (shock, horror).  The Big Three were not healthy companies before the bust, but they were getting better and reforming.  The problem was that they were vulnerable to a downturn, and boy, what a downturn this turned out to be.  As for their products not selling during the boom times, then it's close (by your standards), but not quite true.  Ford F-150 and Chevy Silverado are consistently the top two sellers in US.  GM was also until last year the #1 car maker by volume.

[Berkut]

I wonder if dgs anger is driven by the fact that the auto companies problems are basically all about unions, while the financial sector has no unions to speak of?

Fuck the UAW, and fuck auto company bailouts that are nothing more than bailing out unions and protecting union jobs.

[Valmy]

I wonder if dgs anger is driven by the fact that the auto companies problems are basically all about unions

Haven't we been over this many many times before?  Management has an equal share in this despite your eagerness to blame everything on the Union Bogeyman.

[DGuller]

I wonder if dgs anger is driven by the fact that the auto companies problems are basically all about unions

Haven't we been over this many many times before?  Management has an equal share in this despite your eagerness to blame everything on the Union Bogeyman.

The root cause of the problem was that Big Three was effectively an olygopoly for a long time, just like the airlines.  Oligopoly leads to unions being able to extort unreasonable concessions that leave unbearable legacy costs in the future, and it leads to management not caring too much about actually managing effectively.  It's extremely difficult to root out the rot that lack of competition allows to set.

[Berkut]

I wonder if dgs anger is driven by the fact that the auto companies problems are basically all about unions

Haven't we been over this many many times before?  Management has an equal share in this despite your eagerness to blame everything on the Union Bogeyman.

Indeed, management was stupid enough to knuckle under to the unions.

The situation with the unions means that no matter what management does, it will fail. Shitty management will make it fail sooner, but great management cannot change the fundamental equations.

[Berkut]

I wonder if dgs anger is driven by the fact that the auto companies problems are basically all about unions

Haven't we been over this many many times before?  Management has an equal share in this despite your eagerness to blame everything on the Union Bogeyman.

The root cause of the problem was that Big Three was effectively an olygopoly for a long time, just like the airlines.  Oligopoly leads to unions being able to extort unreasonable concessions that leave unbearable legacy costs in the future, and it leads to management not caring too much about actually managing effectively.  It's extremely difficult to root out the rot that lack of competition allows to set.

Indeed - at this point, the only way to get out of those legacy contracts is bankruptcy. Certainly the unions will never voluntarily give them up.

That is why, as far as I am concerned, every single dollar given to the Big Three is a a dollar handed to a union. It will do nothing to fundamentally change anything - just allow the unions to continue employing people at stupid labor rates for a little longer. And a little longer. And a little longer.

It is like giving more blood to a patient who is bleeding to death because his left leg has been cut off while ignoring the fact that he has no leg. You can keep pumping in blood to keep him alive, but unless you do something about the root problem, it won't matter in the end.

[Savonarola]

Fortune Magazine has an article up on Wagoner:

He could have been a contender
Rick Wagoner is a hard-working, well-meaning guy who could have been remembered as one of GM's greatest CEOs.

GM Chief Executive Rick Wagoner

NEW YORK (Fortune) -- The resignation of General Motors chairman and CEO Rick Wagoner has been rumored for weeks, if not months.

After all, GM has lost more than $80 billion over the last four years and is dependent on handouts from the federal government for survival on a day-to-day basis. Something had to give.

The past several months have not been Wagoner's finest hour. He looked uncomfortable and out of sorts during congressional hearings. And his public statements to present a rationale for the federal aid needed to keep GM alive have seemed lame and unconvincing.

But, if Wagoner had retired on January 1, 2008 instead of March 29, 2009, he might have been remembered as one of GM's greatest leaders.

Without fanfare, he negotiated an historic agreement with the United Auto Workers to reduce the burden of pension and health care costs and to make its hourly labor costs more competitive.

He was also in the final stages of the consolidation of GM's North American operations after a century of balkanization. At last, what was then the world largest auto company would be able to leverage its global scale to become cost- and efficiency-competitive.

None of this was accomplished easily, or without the shedding of thousands of blue- and white-collar workers. But through it all, Wagoner retained the respect and loyalty of the vast majority of GM's enormous workforces.

His achilles heel
What finally did Wagoner in was his misplaced respect for GM's traditions and his failure to foresee a spike in oil prices followed by the collapse of credit markets and the onrushing economic meltdown.

With the memory of GM's disastrous 1980s reorganization still fresh in his mind, Wagoner resisted the large-scale restructuring that GM demanded. Instead of making the company more efficient by doing things differently, he was content to keep doing things the same way but with fewer people.

At a time when Japanese competitors like Toyota (TM) and Honda (HMC) were constantly making improvements, that strategy proved inadequate. Even Ford (F, Fortune 500) began to perform more dynamically than GM (GM, Fortune 500). The dictum that you can't cost-cut your way to prosperity was proved in spades by GM under Wagoner.

Secondly, Wagoner remained loyal to GM's outmoded structure of brands, nameplates and dealers. As GM's market share continued to shrink, he kept trying to develop enough new models to feed eight separate brands and nearly as many separate dealer groups. He never developed a strategy for disposing of the brands and the dealers through benign neglect.

Under pressure from the government, GM finally came up with a plan to get rid of Saab, Saturn, and Hummer, and to downsize Pontiac, but the company belatedly admitted that it was moving several years too late.

In fact, it was 20 years too late, because GM has struggled for at least that long to maintain a credible rationale for each brand and to allocate enough financial resources to keep them all viable.

Finally, Wagoner failed to make the personnel moves that he needed to assure that GM operated with peak efficiency and to admit some fresh air into its closed, inward-looking culture.

That's astounding because Wagoner's recruitment of industry veteran Bob Lutz to run GM's global product development was one of his masterstrokes. Lutz took charge at GM like the Marines taking Mount Suribachi, establishing a coherent, flexible product planning process and returning GM's design operation to its rightful place at the pinnacle of the process.

But Wagoner never followed up his success with Lutz by recruiting other outsiders, leaving it to Ford and Chrysler to recruit Toyota stars Jim Farley and Jim Press.

And despite the clear failure of several staff functions to perform adequately, Wagoner never let anybody go. He despised ritual hangings to keep survivors on their toes and couldn't find it in himself to move anyone aside for poor performance.

The collapse of General Motors is a tragedy in several regards, but nowhere more so than in the case of Wagoner. Having become chief financial officer at the age of 39 during GM's last crisis in 1992, he performed loyally and uncomplainingly throughout his entire career. In other circumstances, he could have been a superstar.

Whenever anyone asked him whether GM's problems were so enormous and so intractable that he just wanted to throw in the towel, he reminded them that he had had some experience in competitive athletics as a basketball player, and that he enjoyed a good challenge.

The challenge finally got the best of him, and GM will be lucky to find anyone so decent to succeed him.

They make some good points; but the parts about the need to shut down dealerships and brands are misleading.  Due to franchise laws it's very difficult and very expensive to eliminate dealerships and brands; it's not something that can be done quickly or cheaply.

[Savonarola]

The root cause of the problem was that Big Three was effectively an olygopoly for a long time, just like the airlines.  Oligopoly leads to unions being able to extort unreasonable concessions that leave unbearable legacy costs in the future, and it leads to management not caring too much about actually managing effectively.  It's extremely difficult to root out the rot that lack of competition allows to set.

The oligopoly is also the reason why there is an excess of dealerships; many came into being before the 1970s when Ford, Chrysler and GM controlled the vast share of the American auto market.  As foreign competition increased the big three were still stuck with the same number of dealers and, due to franchise laws, were unable to cut back on that front.

[DGuller]

Why do we even need dealerships to sell cars?  It just seems like such a wasteful arrangement to me.  Is there any reason why car makers couldn't just operate their own distribution networks directly?

[Savonarola]

Why do we even need dealerships to sell cars?  It just seems like such a wasteful arrangement to me.  Is there any reason why car makers couldn't just operate their own distribution networks directly?

As I understand it, franchise laws and the political power of the dealers have prevented car makers from changing the existing model.  Auto manufacturers have wanted to do things like sell cars online, but the dealerships have blocked that so far.

[DGuller]

As I understand it, franchise laws and the political power of the dealers have prevented car makers from changing the existing model.  Auto manufacturers have wanted to do things like sell cars online, but the dealerships have blocked that so far.

That explains why things stay the way they do, but I still wonder why the model ever evolved that way in the first place.