One of the most discussed aspects of the bailout plan is its involvement in the failing auto industry. Unwilling to let Detroit sink and America’s largest domestic manufacturing industry tumble, President Obama included the automakers in the bailout’s influx of government funds. Thousands of auto employees breathed sighs of relief at the rescue of their jobs. The CEOs of the auto companies could continue the business of designing and producing American cars
Government funds, however, prove to be far from “no strings attached.” The political responses to the auto bailout remained mixed, with many wondering if the bailout opened Pandora’s Box of taxpayer dollars. After American International Group’s recent debacle, President Obama made it clear he will not shirk from using a hands-on treatment with assisted corporations. During the past weeks, the government called in its 80 percent share of A.I.G to insist upon key management decisions within the corporation. The White House has taken a strong stance: Mismanage your corporation with your own funds, not those of American taxpayers.
With this philosophy in mind, President Obama asked Rick Wagoner, the chairman and chief executive of General Motors, to step down Sunday. Wagoner served as CEO of GM since 2000 and faced many difficulties throughout his term, like slowing demand and internal problems. Answering a call for change, Wagoner’s first steps as the new CEO included removing Oldsmobile from the corporation’s costly list of marketing needs.
But Wagoner was wrong about striving to keep GM’s failing brand and dealer structure afloat. Feeding new designs and models to eight brand labels year after year left GM with few profits. Wagoner understood the need for GM, especially after its disastrous internal restructuring during the 1980s, to take more pragmatic views of its corporate model, but he failed to complete any far-reaching revisions to the corporate structure.
GM reached its critical point in 2005 with losses near $11 billion and watched its market share dwindle in comparison with foreign competitors. Wagoner ignored the prospect of bankruptcy, instead believing that GM would find its golden answer through external investor benchmarks. Wagoner’s commitment to the flailing company remained unswerving; as Peter Bible, the corporation’s chief accounting officer, said of Wagoner in 2006, “He woke up every morning going to work with the devotion of a priest.”
This devotion brought Rick Wagoner to call a town hall meeting in Detroit to discuss GM’s financial situation in November 2008. By then, the corporation had only a month’s worth of cash on hand. Wagoner’s management of GM could not foresee the heavy hits the auto industry took because of spiked oil prices in the months prior. It was obvious that outside help would be necessary to avoid bankruptcy, and Wagoner made it clear he would march through Washington to get it. His fervor was met by an overwhelmingly positive response.
The response to Wagoner’s decisions, however, has paled in recent months. In exchange for receiving tax money to keep GM in business, Washington insisted upon drastic changes for the corporation — including massive restructuring of leadership — meaning the end of Wagoner’s involvement. Frederick A. Henderson, the current president, will become the temporary CEO. The requests of President Obama mark what The New York Times calls “a level of government involvement in business perhaps not seen since the Great Depression.”
The decision to remove Wagoner begs the continual question: How much should the government be able to influence the internal workings of bailed-out corporations? Making leadership decisions for GM indicates a proactive policy about the results of spending tax dollars. A new, revamped executive team may mean a new start for GM, and certainly, lending billions gives the government a say in corporate decision making. But, if the government has to go so far as to engineer the corporation’s leadership, should the corporation exist at all in a competitive market?
The long-term results of the bailout can be the only test as to the benefit of government assistance in failing American industries. And, as for Wagoner, I think it’s safe to say he won’t be caught sporting an Obama T-shirt anytime soon.
Lauren’s column runs biweekly Thursdays. She can be reached at l.palmer@cavalierdaily.com.
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