AUTOS : GM Removes Executives at Finance Unit : Automobiles: The housecleaning was ordered after charges of a $422-million fraud at one of the company’s dealers.
Citing mismanagement and poor judgment, General Motors Corp. ordered a major housecleaning at its giant finance subsidiary Thursday in the wake of embarrassing charges of a $422-million fraud at one of its car dealers.
GM replaced the president, the chief financial officer and the operations boss of General Motors Acceptance Corp. It also reassigned several other officials and said it is taking disciplinary action against “numerous” employees at GMAC’s Smithtown, N.Y., office.
But the financially troubled auto maker said an internal investigation found no evidence of criminal activity or “self-dealing” by any GM employee.
“You can say this was a matter of accountability,” a GMAC spokesman said. “There was some mismanagement, poor judgment and non-performance of obligations.”
It was GM’s first substantive comment in the case of former dealer John McNamara of Port Jefferson, N.Y., who is accused in a federal indictment of bilking GMAC out of $422 million in an elaborate phony export scheme. McNamara has pleaded not guilty to the charges.
Disclosed in December as GM’s deep problems and inefficiencies in the car and truck business were becoming clear, the McNamara case seemed to bolster a growing impression of the nation’s biggest company as financially inept.
GM lost $4.5 billion last year, the worst showing ever by a U.S. corporation. Its woes led the GM board to revolt in April, forcing the ouster of the company’s president and another corporate reorganization. Since then, fast-paced change under its new president, John F. Smith Jr., has been remaking the face of GM’s North American car and truck business.
Analysts said Thursday’s ousters at GMAC, instead of the customary face-saving reassignments, are another sign that GM’s new aggressiveness is taking place companywide.
“It’s a real change in policy at GM to see such quick action,” said John Casesa, an analyst with Wertheim Schroder in New York. “New management is becoming less willing to tolerate poor performance.”
Shortly before the alleged fraud was made public, GM announced the May 1 retirement of John R. Edman, GMAC’s chairman and chief executive, and his replacement by Robert T. O’Connell.
On Thursday, President William J. Lovejoy, 52, was placed on “special assignment” and replaced by John R. Rines, 44. Chief Financial Officer George G. Fenner, 58, retired and was replaced by John D. Finnegan, 43.
The company also said it will expand and upgrade its auditing staff and create a new position to oversee “major credit exposures.”
But the auto firm offered few details of how the massive scheme, which allegedly involved about $6.2 billion in loans to McNamara over six years, could have been allowed to take place.
GM characterized the affair as an “aberration” that occurred outside its main business, which is providing financing to GM dealers and customers in the wholesale and retail purchase and sale of GM cars and trucks.
The business makes GMAC the nation’s biggest credit company. Despite a $171-million fourth-quarter charge against earnings because of the alleged fraud, GMAC earned $1.37 billion last year.
The investigation “did not reveal systemic problems with GMAC’s operating and control procedures in its core business functions,” GM said.
The indictment said McNamara used his Buick-Pontiac dealership to get the huge loans to finance the export of nonexistent recreational vehicles overseas. He allegedly used proceeds of each succeeding loan to pay off previous credits while siphoning off about $422 million into real estate, gold mines and other personal deals.
McNamara, 52, pleaded not guilty to federal racketeering and fraud charges June 2 and is free on $300 million bond. He agreed last month to turn over nearly $400 million in assets to satisfy creditors.
