Why Obama Axed Wagoner

[pow]

Normally I'm not a fan of John McElroy (Autoline Detroit), but his post on Autoblog sums it up nicely, IMO:

http://www.autoblog.com/2009/03/30/autolin...h-john-mcelroy/

WHY OBAMA AXED WAGONER

Rick Wagoner is no longer CEO of General Motors for two reasons. First, he failed to come up with a plan that satisfied the government that GM would be viable going forward. Two, President Obama needed political cover before he poured more money into the auto industry, a move which is strongly opposed by a majority of Americans.

Obama needed to show he was decisive and in control to maintain support for his efforts to provide taxpayer money to GM and Chrysler. And firing the chairman of General Motors will make it easier for the Administration to demand more concessions from the UAW.

While axing Wagoner caught me by surprise, after reading the Task Force's report, I almost wonder why the President didn't feel compelled to act sooner. The "Determination of Viability Summary" is a harsh critique of GM's plans. In the eyes of the Task Force, Wagoner simply did not move fast enough and did not meet the government's loan requirements: GM did not come up with a competitive labor agreement, did not renegotiate its VEBA payments, and did not come to an agreement with its bond holders. Indeed, under the latest plan GM submitted to the government, its restructuring efforts would not be completed until 2014.

Worse, the Task Force believes GM's plan made unrealistic assumptions. And yet, even with its rosy assumptions, GM's plan called for it to "generate negative cash flow" for years to come. Its legacy liabilities would cost $6 billion a year through 2014, requiring GM to boost sales by 900,000 vehicles a year to pay for it. But GM's plans didn't call for raising sales. Instead, it assumed that it would merely lose market share at a slower rate. The Task Force didn't buy that since GM is slashing fleet sales and closing brands.

It also found fault with GM's assumption that its North American Operations would increase its contribution (profit) margin, despite the move towards passenger cars where it has lower margins. And it pointed out that GM's lingering perception problems mean it must discount its cars.

The Task Force laid out a litany of problems it sees with GM's plan:

* It's not getting rid of unprofitable or underperforming dealers fast enough.

* Its European operations need government help which has not been forthcoming.

* GM makes too much of its profits on trucks and SUVs, and is vulnerable to energy-price driven shifts in demand.

* Of its top 20 profit producers, only 9 are passenger cars.

* Most of its products are in the bottom quartile of fuel economy.

* GM is a design generation behind Toyota in green powertrains.

* The Volt will be too expensive to be a big commercial success.

* The plan leaves no room for error. Even a 1% miss on sales volume in 2014 would mean another $2 billion less in cash flow.

Under its current plan GM would be at breakeven, at best, during the transition period. That alone failed the government's requirement for viability.

But what really drove the last nail in the coffin is that GM is already behind in its plan for 2009 sales and market share. That sapped any confidence that GM would hold to its plan going forward.

So what's next? President Obama gave GM 60 days to come up with a new plan, or he's going to force the company into bankruptcy. Whether that means a pre-packaged bankruptcy or formally filing for Chapter 11 no one knows.

But we can be sure of one thing. GM's new CEO Fritz Henderson undoubtedly got the message. Either he's going to come up with a new plan that addresses each and every one of the Task Force's concerns, or General Motors is going to have a brand new CEO in 60 days.

###

[CaddyXLR-V]

So GM failed at every aspect, and people here just expected the govt to say, ok you were close enough here's some money?

[turbo200]

the section where it discusses GM's profitability going forward and how quickly they'd pay back and get in control of thier liabilities--GM expected to keep market share at a near constant or start losing it at a rate of .3%; the problem is GM has been losing it at a rate of .7% going back to the 90's........and that's without slashing fleets and closing as many brands as they will. was someone drunk when they came up with that plan, stupid, or just plain not trying?

[Robert Hall]

the section where it discusses GM's profitability going forward and how quickly they'd pay back and get in control of thier liabilities--GM expected to keep market share at a near constant or start losing it at a rate of .3%; the problem is GM has been losing it at a rate of .7% going back to the 90's........and that's without slashing fleets and closing as many brands as they will. was someone drunk when they came up with that plan, stupid, or just plain not trying?

Was that an annual or monthly loss rate? I would assume 2-3% per year loss of market share would be more realistic.

[balthazar]

The government's assessment contradicts some of it's own requirements.

-- -- -- -- --

GM has too many brands & GM has to close more dealers than the 35% they are calling out to >><< GM is loosing too much marketshare....

GM needs to sell 900K more vehicles to cover legacy costs >><< GM needs to sell far less trucks & SUVs....

GM did not address the marketshare issue in the last 3 months >><< GM needs to address the marketshare issue in the next 2 months....

-- -- -- -- --

This is a no-win dog-n-pony show from the White House. Like Camino said elsewhere- the end point is already scripted.

[Chicagoland]

Anyone who thinks a GOP White House would have 'saved GM' better is living in Disneyland.

Wagoneer was still in the 'just wait til' mode. Expecting 'good old days' or 29% to come back "soon".

[turbo200]

The government's assessment contradicts some of it's own requirements.

-- -- -- -- --

GM has too many brands & GM has to close more dealers than the 35% they are calling out to >><< GM is loosing too much marketshare....

GM needs to sell 900K more vehicles to cover legacy costs >><< GM needs to sell far less trucks & SUVs....

GM did not address the marketshare issue in the last 3 months >><< GM needs to address the marketshare issue in the next 2 months....

-- -- -- -- --

This is a no-win dog-n-pony show from the White House. Like Camino said elsewhere- the end point is already scripted.

i think you are looking at this with rather protective eyes, instead of just taking it for what it is--a criticism based on talking to experts within the industry. for example, nowhere in the report does it stipulate the gov't would like the company to sell, or would like more of these kinds of products, or a requirement to sell trucks. it notes all the hurdles in selling trucks in the coming years, fuel economy standards and the public's increasing appetite for smaller cars included, and notes GM will no longer be able to sell as many as before. they don't give a prescription for how to solve the problems because that is not thier job! their job was to accurately asses GM's own solutions to GM's problems....and dealing with whether those solutions were really going to bring profitability. they've determined those solutions will only continue to sink the company. this is consistent with what Obama has been saying all along about how we would treat this situation if you've been following him and not looking at this with eyes closed [not referring to you specifically, but other posters here today especially]

[turbo200]

Was that an annual or monthly loss rate? I would assume 2-3% per year loss of market share would be more realistic.

29% was what they were at in 2001, i beleive, and last year they were ~22%.

[ShadowDog]

I'm quite surprised anyone realistically thought GM was going to make its way out of this intact. The changes up to now have been anything but drastic in order to literally save the company from expiring. It's almost as though everything up to now has been given the 'wait and see' approach. At times when conditions were less than favourable for a company of our family to remain afloat during times in the 80's, a hard look at what services pulled too many resources and employees, took too long to generate cash flow and received too few profits were immediately axed to eliminate the debts their operations created. We lost those related clients, but we didn't need them to survive.

GM won't retain or emerge with more marketshare any time soon, regardless of the changes they make. If they cannot sustain themselves with all brands and just fewer model lines, I truly believe they can make a go with less brands and advance the major brands with better focus. To continue the way it is will be a slow death. Apparently few here can accept change; however, GM simply cannot make a single change without someone here declaring it a big mistake.

Edited March 31, 2009 by ShadowDog

[Robert Hall]

29% was what they were at in 2001, i believe, and last year they were ~22%.

It will be interesting to see where '09 ends up...15-18%?

[balthazar]

Yeah- that'll be really "interesting'. Interesting word choice, there.

-- -- -- -- --

>>"just taking it for what it is--a criticism based on talking to experts within the industry."<<

What 'experts' are these? -- the Auto Task Force ?? Not a single person with any business experience or education among them. How are they qualified, again ??

>>"...they don't give a prescription for how to solve the problems because that is not thier job! their job was to accurately asses GM's own solutions to GM's problems....and dealing with whether those solutions were really going to bring profitability. "<<

They don't give a 'prescription' NOT because that's 'not their job', but because they have no idea. Which is exactly why they are not qualified to accurately assess anything, either, unfortunately. Thusly, the contradictions.

Is a little common sense and a basic knowledge of the workings of the industry too much to ask from them ????

Edited March 31, 2009 by balthazar

[GXT]

"* Most of its products are in the bottom quartile of fuel economy.

* GM is a design generation behind Toyota in green powertrains.

* The Volt will be too expensive to be a big commercial success."

Except I would say they are actually two generations behind in hybrids.

Perhaps we will see an end to those silly "More rebadges than anyone getting 30+ MPG highway" commercials and all this "the Volt will save GM" nonsense.

GM should try building it rather than just advertising the illusion of it.

[pow]

Yeah- that'll be really "interesting'. Interesting word choice, there.

-- -- -- -- --

>>"just taking it for what it is--a criticism based on talking to experts within the industry."<<

What 'experts' are these? -- the Auto Task Force ?? Not a single person with any business experience or education among them. How are they qualified, again ??

>>"...they don't give a prescription for how to solve the problems because that is not thier job! their job was to accurately asses GM's own solutions to GM's problems....and dealing with whether those solutions were really going to bring profitability. "<<

They don't give a 'prescription' NOT because that's 'not their job', but because they have no idea. Which is exactly why they are not qualified to accurately assess anything, either, unfortunately. Thusly, the contradictions.

Is a little common sense and a basic knowledge of the workings of the industry too much to ask from them ????

I think basic accounting tells us that $14.5b in negative cash flow over a 6 year period (as projected under GM's own plans and assumptions) does not make for a viable business. The task force's job was to determine if the creditor should loan a company more money, simple as that.

[hyperv6]

Anyone who thinks a GOP White House would have 'saved GM' better is living in Disneyland.

Wagoneer was still in the 'just wait til' mode. Expecting 'good old days' or 29% to come back "soon".

The majority of us wish neither Dem or GOP were involved.

By the way it is Disneyland now with the Dems and it was Bush Gardens before with the GOP.

Edited March 31, 2009 by hyperv6

[Intrepidation]

"* Most of its products are in the bottom quartile of fuel economy.

* GM is a design generation behind Toyota in green powertrains.

* The Volt will be too expensive to be a big commercial success."

Except I would say they are actually two generations behind in hybrids.

Perhaps we will see an end to those silly "More rebadges than anyone getting 30+ MPG highway" commercials and all this "the Volt will save GM" nonsense.

GM should try building it rather than just advertising the illusion of it.

I wouldn't say they're behind at all from a technology standpoint. I could be wrong but isn't the 2-mode system as advanced if not more than Toyota's hybrid system?

The problem is you can't get it in cars, where the fuel economy gains will be largest. You get them in trucks and SUVs only and the cars gets stuck with the half ass mild hybrid system.

[FUTURE_OF_GM]

The government's assessment contradicts some of it's own requirements.

-- -- -- -- --

GM has too many brands & GM has to close more dealers than the 35% they are calling out to >><< GM is loosing too much marketshare....

GM needs to sell 900K more vehicles to cover legacy costs >><< GM needs to sell far less trucks & SUVs....

GM did not address the marketshare issue in the last 3 months >><< GM needs to address the marketshare issue in the next 2 months....

-- -- -- -- --

This is a no-win dog-n-pony show from the White House. Like Camino said elsewhere- the end point is already scripted.

So true...

The government doesn't know it's ass from a hole in the ground and, like GM, it's been watered down, half assed and too many things to too many people for 20 years now. This is an example of the poor planning and schizphrenia that has plagued DC for a long time. That got us into this mess and it'll seal GM's coffin as well.

It makes perfect sense when one thinks about it. "GM needs more share and needs to make more money" YET "GM must sell less trucks with fewer dealers and half of it's brands."

F*CKIN' BRILLIANT!!!!

[CaddyXLR-V]

So true...

The government doesn't know it's ass from a hole in the ground and, like GM, it's been watered down, half assed and too many things to too many people for 20 years now. This is an example of the poor planning and schizphrenia that has plagued DC for a long time. That got us into this mess and it'll seal GM's coffin as well.

It makes perfect sense when one thinks about it. "GM needs more share and needs to make more money" YET "GM must sell less trucks with fewer dealers and half of it's brands."

F*CKIN' BRILLIANT!!!!

I think the govt was actually just saying GM's plan wont work, because GM was saying their share will only fall so much, but they believe it will fall more especially if they are cutting/selling brands, they said GM can't make all their profit from trucks, because those profits wont be there forever once gas prices rise. GM's plan sucked, that's all there is to it.

[balthazar]

I think basic accounting tells us that $14.5b in negative cash flow over a 6 year period (as projected under GM's own plans and assumptions) does not make for a viable business. The task force's job was to determine if the creditor should loan a company more money, simple as that.

That is simple, but unfortunately, the Gov doesn't operate that way, because it requires common sense. Case in point: that was not called out as one of the criteria GM failed to meet (ie: profitability).

GM has 20 vehicles that generate a profit, but the Task Force has suggested that 11 of them be discontinued. Conclusion: profitability is not a primary concern.

>>"...because GM was saying their share will only fall so much, but they believe it will fall more especially if they are cutting/selling brands, they said GM can't make all their profit from trucks, because those profits wont be there forever once gas prices rise. GM's plan sucked, that's all there is to it."<<

GM proposed cutting X-amount of dealers, TF said it wasn't enough... therefore GM's sales projections are automatically wrong even if they're right.

'Viability' means profit. Trucks are still circa 50% of the market, and that segment is NOT going to disappear. To address 'viability', then 'recommend' selling less of those profit-making vehicles for 'green' reasons or guessed-at future markets, is contradictory. GM cannot get to future markets without getting thru present markets. They NEED profit. If trucks make profits, wouldn't --say-- offering a small tax credit boost sales and work toward both the future and a ROI ??

If GM's plan sucks, so does the TF's 'analysis' of it and recommendations RE it.

Edited April 1, 2009 by balthazar

[turbo200]

please show me the evidence that backs up your opinion that the Task Force is telling GM to sell less trucks. please tell me where they state GM has to build more green vehicles. please show me where they say the defecit in GM's profit is due to green vehicles, ie hybrid vehicles.

the only thing the Task Force does is make predictions about the steadiness of markets and outline in what segments the company has fallen behind and what segments the company has come to depend to heavily upon.

[ShadowDog]

please show me the evidence that backs up your opinion that the Task Force is telling GM to sell less trucks. please tell me where they state GM has to build more green vehicles. please show me where they say the defecit in GM's profit is due to green vehicles, ie hybrid vehicles.

the only thing the Task Force does is make predictions about the steadiness of markets and outline in what segments the company has fallen behind and what segments the company has come to depend to heavily upon.

If I may, I believe it's all implied in the Task Force's findings. If you didn't see it, the Task Force wasn't pleased with GM's overly optimistic plan that relies too heavily on their truck and SUV sales, which has brought GM the most money only up until this credit crisis. Banking on continued sales of these vehicles for their success is looking too far forward. GM doesn't have that kind of time.

The second one appears to revolve around the fact that GMs green technology is behind that of its competitors and absolutely must be more established in order to capture that market.

The third one appears to be a relation of the first two. Though I'm not especially convinced that GM hasn't applied a direct approach to the green market. Their flex-fuel, hybrid and now electric offerings have made great strides in the industry; however, they haven't been marketed for wide acceptance. I tend to think the Task Force is merely looking at GMs involvement in the green market as being "behind" the more socially accepted competitors, namely Toyota.

I do not believe the Task Force is making any sort of prediction, but simply providing their input on the viability of GMs predictions, calling them far too optimistic as being based entirely on the notion that the market will improve. While the market may do just that, it isn't going to happen overnight. GM needs short term damage control to endure, which is why it has been widely reported that Wagoner and Co. were just moving too slowly.

[CaddyXLR-V]

I do not believe the Task Force is making any sort of prediction, but simply providing their input on the viability of GMs predictions, calling them far too optimistic as being based entirely on the notion that the market will improve. While the market may do just that, it isn't going to happen overnight. GM needs short term damage control to endure, which is why it has been widely reported that Wagoner and Co. were just moving too slowly.

Exactly. I think it is reasonable to believe that gas prices will reach $4 a gallon again before 2014(probably more like 2010-2011), which is when GM is predicted to break even. Truck sales will tank, GM will not get the profits they predicted from selling trucks and SUVs. Therefore, GM will not break even under that plan by 2014, and the govt will need to continuously support GM. Bad plan.

[Teh Ricer Civic!]

.

[Intrepidation]

K guys, I'm giving a verbal warning: keep the mud slinging out, save it for the Politics section.