White House Asks GM Chief to Step Aside

By Jeralyn, Section Economy
Posted on Sun Mar 29, 2009 at 11:00:54 PM EST
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President Obama will unveil his plan to help the auto industry tomorrow. And General Motors chairman and chief executive G. Richard Wagoner is resigning at his request.

Wagoner's resignation was one of the White House conditions for more federal aid. "He agreed and will do that," a senior administration official said Sunday evening.

Wagoner, 56, joined the company in 1977 and has been chairman and chief executive since 2003.

In related news, Chrysler may have to merge with Italian-owned Fiat. A structured bankruptcy may be in the future for both Chrysler and GM. [More...]

Chrysler LLC has failed make its case to the federal government that it can be viable as a stand-alone company, and may have to resort to restructuring through bankruptcy court, the Obama administration's auto industry task force concluded in a memo released late Sunday.
The best chance for Chrysler and General Motors Corp. to recover "may well require utilizing the bankruptcy code in a quick and surgical way," the task force wrote in a memo summarizing its findings on the two auto makers. A "structured bankruptcy," the panel added, "would be a tool to make it easier for General Motors and Chrysler to clear away old liabilities so they can get on a path to success."

In two years, will everyone be driving cars made by Lexus, Mercedes, Audi/Volkswagon, Hyundai, Nissan, Kia and Honda?

Another question: Does this news mean the stock market will tank again Monday?

Update 3/30: Answer to stock question is yes.

< Obama Tough On Detroit, Easy On Wall Street | Late Night: Little GTO >

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White House Asks GM Chief to Step Aside | 24 comments (24 topical)

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And per the Politico, Chrysler is being let go (none / 0) (#1)
by andgarden on Sun Mar 29, 2009 at 11:29:50 PM EST

Ah, I read somewhere that (none / 0) (#2)
by Cream City on Sun Mar 29, 2009 at 11:32:30 PM EST

either Chrysler or Ford was not going to get bailout funds. So the CEO is the price that Ford paid. Or, shall we say, the price that we will pay, since it's our money.

[ Parent ]

Through the veneer of Politico's (none / 0) (#3)
by andgarden on Sun Mar 29, 2009 at 11:38:57 PM EST

gossipy journalism:

White House sources bashed Chrysler's plan for recovery, saying that it contained overly optimistic and flat-out unrealistic economic assumptions.
Not only that, these sources said in no uncertain terms, its cars aren't very good either.
In a conference call with reporters, a senior administration official cited several awards recently presented to General Motors cars, but could think of no industry recognition for Chrysler vehicles. "Chrysler has no cars that are recommended by Consumer Reports," the official said.

Hard to disagree. Except, well, that's a lot of jobs.

[ Parent ]

LOL (5.00 / 1) (#8)
by The Addams Family on Sun Mar 29, 2009 at 11:47:27 PM EST

Not only that, these sources said in no uncertain terms, its cars aren't very good either

Reminds me of the punch line of that joke in which a guy tells his doctor he wants a second opinion. The doctor says, "You're ugly, too."

[ Parent ]

I have a Chrysler (none / 0) (#6)
by Inspector Gadget on Sun Mar 29, 2009 at 11:42:26 PM EST

and know plenty of people who do. You don't see them sitting along side the road with the hoods up like you do other vehicles. I hope the parts manufacturers stay in business.

[ Parent ]

As a Jeep Owner (none / 0) (#7)
by Jeralyn on Sun Mar 29, 2009 at 11:46:03 PM EST

I feel the same way. I switched from Mercedes to Jeep in 1988 and never looked back. I've loved all my Jeeps. Guess I better get into the service department for my 3,000 mile checkup this week.

[ Parent ]

: Maybe GM will keep the best (none / 0) (#9)
by Inspector Gadget on Sun Mar 29, 2009 at 11:51:39 PM EST

from all the makes and models they have to pick from :)

[ Parent ]

Chrysler beat Ford in sales (none / 0) (#12)
by Cream City on Mon Mar 30, 2009 at 12:05:09 AM EST

last month, after Chrysler took tough steps. But so it goes -- and there goes about $15 billion in our money that it got in the first bailouts.

Maybe Ford can hire the guys from Chrysler who figured out how to beat Ford in sales -- although the downside might be that you get beat down for it.

[ Parent ]

Cerberus Capital Management (none / 0) (#15)
by Politalkix on Mon Mar 30, 2009 at 06:21:09 AM EST

From Politico
"One other factor that likely weighed on the Chrysler decision - though no Administration officials said so explicitly - is that Chrysler is owned by the secretive private equity firm Cerberus Capital Management. That firm, which is headed by former Bush Administration Treasury Secretary John Snow, is presumably sitting on billions of dollars in cash, yet has declined in recent months to provide additional financing to its own portfolio company. That means either that Cerberus is much poorer than most investors assume, or that it has concluded on its own that Chrysler is a lost cause."

[ Parent ]

Ford turned the funds down (none / 0) (#4)
by Inspector Gadget on Sun Mar 29, 2009 at 11:39:32 PM EST

and prefers to regroup and recover on their own.

Apparently, they didn't like the terms of the gov't money.

[ Parent ]

Seems to me (none / 0) (#5)
by TeresaInSnow2 on Sun Mar 29, 2009 at 11:39:59 PM EST

that auto industry problems were greatly fueled (no pun intended) by the banking industry issues.

Nobody is lending, therefore nobody is buying.

Amd of course the banking problems lead to consumer confidence problems, further depressing auto sales.

The Obama answer? Punish the auto industry and reward the banking industry? Krugman is right. It's painfully easy to assume nefarious motives.

Nobody is lending? (none / 0) (#13)
by Romberry on Mon Mar 30, 2009 at 12:07:09 AM EST

I don't know why people say that. It really isn't true.

If you are creditworthy, an auto loan (or a home loan or just about any other kind of consumer loan) is available. The problem is that with underwriters now paying attention to underwriting and the three-C's of credit, more than a few people who could have bought even when they never should have been able to secure financing now can't buy...because they really shouldn't be financed. Even in those cases, with a stout (10-20 percent of the purchase price) down payment, financing is available.

[ Parent ]

Well, it's not (none / 0) (#16)
by eric on Mon Mar 30, 2009 at 06:59:22 AM EST

that nobody is lending, it is that lending is greatly reduced. Sure, there are rich people and people with credentials that will get them loans, but that isn't most Americans. For the average American, the credit industry has done such a good job shaming us with their "credit score" garbage, while at the same time raising fees, raising interest rates to unconscionable usurious levels, using "universal default", and closing bankruptcy options, that so few people are "creditworthy" that it just seems like nobody is lending.

Could I get a car loan? Possibly at some greatly inflated rate. But instead, I am driving my old Mazda and waving good-bye to GM.

[ Parent ]

Lending SHOULD be reduced (none / 0) (#20)
by Romberry on Mon Mar 30, 2009 at 12:27:39 PM EST

If anyone is looking for a return to the days of credit so EZ that if you could fog a mirror, you could get a loan, they are going to be sorely disappointed.

There was too much credit out there. It was a bubble. It did what bubbles do: Pop!

[ Parent ]

That's fine (none / 0) (#22)
by eric on Mon Mar 30, 2009 at 01:55:57 PM EST

but then companies that make products that require their customers to obtain financing are going to have to learn to survive without it. And when it comes to car companies, well, they are in big trouble. There are not enough people with "good" credit to keep up any kind of demand, and people in this country simply don't make enough money to buy new cars.

The average price of a car is $28,400. The median household income is $50,233. So, the average car costs more than 50% of the median income. That does not sound reasonable to me. Of course, not many people actually "own" their cars, they just finance them. That is how these companies have survived. But if you take away the financing, the cost of a car is pretty prohibitive.

[ Parent ]

That's the average price... (none / 0) (#23)
by Romberry on Mon Mar 30, 2009 at 07:49:38 PM EST

...of a new car, not the average price of a car. As someone who used to be in the biz, gotta tell ya that it is never (never, never, never) smart to buy new when one to two year old gently used alternatives are available, often for 40 percent less than the price was when new. There are some odd exceptions out there at the moment (like new Honda Accords selling for less than used Accords) but the rule remains true.

As to the whole "well, they need customers" shtick, all I can say is that you have an odd point of view. Basically what you are asking for is a return to the same lax lending standards which helped get us into this mess. What good comes from saddling people with debt they do not have a likely ability to repay? Answer: None

[ Parent ]

: I am not advocating for (none / 0) (#24)
by eric on Mon Mar 30, 2009 at 11:47:52 PM EST

anything. I am just pointing out that many, if not most, Americans can't afford a new car. I would never buy a "new" car myself, I know the benefits of used, trust me. I don't have an "odd" point of view. I know people can't afford new cars.

[ Parent ]

No good answers here (none / 0) (#10)
by Romberry on Mon Mar 30, 2009 at 12:02:18 AM EST

White House: Chrysler Small Enough to Fail

It turns out that Chrysler might be just small enough to fail. In the end, the Obama administration decided to back General Motors - at least for 60 days - but to effectively wash its hands of Chrysler after only 30 days. Barring a last-minute rescue by Italian automaker Fiat, U.S. taxpayers won't put up another penny to back the company. For all the times President Barack Obama's been told he must prop up companies that are "too big to fail" - think Citigroup and AIG - he's finally found one that he's decided he can let go, if he has to. It's not a step he'd take lightly, for sure - to be the president who oversaw the Big Three in Detroit shrinking into the Big Two. Losing Chrysler would cause massive pain in Detroit and the Rust Belt states where Obama succeeded in 2008 - hitting hard at those blue-collar families he struggled to win over in the first place. He's worried enough about the economic displacement to appoint a recovery director for that. ...
The hard numbers are these: Chrysler, in 2008 employed 58,000 people.General Motors employed many more: 252,000.

Looks like we potentially also may say goodbye to GM:

Obama denies bailout funds for automakers

(AP) - The White House says neither GM nor Chrysler submitted acceptable plans to receive more bailout money, setting the stage for a crisis in Detroit and putting in motion what could be the final two months of two American auto giants. President Barack Obama and his top advisers have determined that neither company is viable and that taxpayers will not spend untold billions more to keep the pair of automakers open forever. In a last-ditch effort, the administration gave each company a brief deadline to try one last time to convince Washington it is worth saving, said senior administration officials who spoke on the condition of anonymity to more bluntly discuss the decision.
Obama was set to make the announcement at 11 a.m. Monday in the White House's foyer.

Chrysler's failure alone would be bad enough...not that I am any great fan of Chrysler, much less their current owners. But seeing them go away will kill off a lot more than just the 58,000 jobs at Chrysler. A lot of ripple-through is going to devastate tier 1, 2 and 3 suppliers and there will be job losses from that as well. And if GM also goes...well...I don't see any good here. Propping up companies that will fail no matter what is folly. Letting them fail may not be a better choice.

All I can say is that GM and Chrysler should have bought out a bank or gotten into derivatives in a big way. Then they would be "systemically important" and even a trillion dollar handout would not be an issue.

The standard formula (none / 0) (#14)
by Cream City on Mon Mar 30, 2009 at 12:08:41 AM EST

I've heard for impact of each auto plant is that 7 to 10 other workers in related industries -- from massive parts manufacturing plants to taverns near the auto and parts plants -- will face layoffs, too.

That could mean as many half a million more out of work in coming months as a result of this move.

[ Parent ]

please don't reprint articles (none / 0) (#18)
by Jeralyn on Mon Mar 30, 2009 at 11:03:59 AM EST

in comments, link and quote a short line or two or paragraph. thanks.

[ Parent ]

: Sorry about that. (none / 0) (#21)
by Romberry on Mon Mar 30, 2009 at 12:29:56 PM EST

I tried to excerpt within what I though were the standards of fair use. I will work to keep the standards of this forum in mind as well. I'm a guest in your home, so to speak, and it's a privilege afforded to me, not a right, and I am aware of that.
My apologies.

[ Parent ]

No doubt about it now (none / 0) (#11)
by andgarden on Mon Mar 30, 2009 at 12:04:17 AM EST

Aside from Ford, the Uncle Sam is running the American auto industry.

Italian-owned FIAT (none / 0) (#17)
by Grey on Mon Mar 30, 2009 at 08:38:46 AM EST

FIAT is Italian, not Spanish. Their new team has been doing good things, turning things around a bit, and there is the added bonus that FIAT has loads of experience with fuel-efficient technologies, so it may be a good thing for Chrysler, but...it may be way too little, far too late.

: fixed, thanks (none / 0) (#19)
by Jeralyn on Mon Mar 30, 2009 at 11:07:51 AM EST

thanks for pointing that out. I have no idea why I typed spanish instead of Italian.

[ Parent ]