General Motors – Delay of the Game

“Fish begin stinking from the head” is a term often heard when CEOs have to clean out their desks and leave. Barack Obama’s justification for forcing Rick Wagoner to leave General Motors is that the failing carmaker had to restructure in order to survive.

Actually, Wagoner falls more into the category of a political sacrifice necessary to justify a government bailout.

Of course, it’s right that the head of GM has to go. Wagoner represents nine years of mismanagement and failed policies. In view of the catastrophic condition GM finds itself in, his departure is long overdue. It will be difficult, however, to use this top-level change to symbolize a new direction for the company – in the final analysis, Wagoner’s successor has a long career in Detroit behind him as well.

Wagoner really became politically untenable last fall when he and his colleagues from Ford and Chrysler flew in their private corporate jets to Washington where they begged for a taxpayer bailout. More fuel was added to the fire when AIG managers were rewarded with bonuses and the public debate over managers and morals got louder; Obama had to avoid giving the impression that he was giving money to managers of bankrupt companies to get them out of a mess they had gotten themselves into.

Now Obama is further insulating himself from accusations by characterizing the restructuring plans the companies came up with as insufficient and demanding deeper cuts.

Delaying a final decision alters nothing for the U.S. government’s need to give General Motors more help. But the public will more easily swallow government help, which has to continue even if the company gets Chapter 11 protection, if it’s served up in small slices.

Now it’s going to get tight for the autoworkers unions and GM investors. Under Chapter 11, the government is obligated to do everything possible to save the company’s supplier and dealer networks and to preserve the core of the company in the event of a GM insolvency. In return, the company may cancel any contractual obligations it may have. For American taxpayers and foreign automobile manufacturers, that would be the best outcome.