Wagoner ouster a 2-edged sword
By showing General Motors chief Rick Wagoner the door, President Obama is in effect announcing that if the government picks up the tab for a stumbling business, it gets the right to call the shots.
The move is as dramatic a reach into the boardroom of an independent American corporation as the government has made in decades, possibly since the ‘30s. Although the Bush administration dictated changes in management at AIG, Fannie Mae and Freddie Mac, its ownership positions at those financial firms were unassailable.
For Obama there are risks in taking a hard line with GM and Chrysler, as the White House did Monday by giving both companies a few short weeks to concoct viable restructuring plans on pain of being forced into bankruptcy.
One risk is that the tough-love message underscores the free pass that Wall Street has received from the government.
Obama also takes a chance that he’s delivering a message to Americans they may not want to hear -- that history and tradition notwithstanding, manufacturing doesn’t have the sway over the U.S. economy that it used to. Why should salaries and bonuses of Citigroup employees be protected while autoworkers’ duly negotiated collective bargaining agreements are thrown up for grabs? Because the tentacles of a failed big bank can strangle the global financial system, while the failure of an auto company, Big Three or not, would be a comparatively self-contained disaster. That’s the notion, at least.
The biggest risk may be that the government gets sucked -- or is it “suckered”? -- into running a big business. “The United States government has no interest in running GM. We have no intention of running GM,” Obama said Monday, and who can blame him? The last thing he wants is to inherit the blame for the domestic automobile industry’s condition.
Still, let’s look at the virtues of Obama’s action.
Naming Wagoner’s defenestration as the price of 60 more days of bailout money for GM signals -- as does the administration’s blunt talk about some form of bankruptcy restructuring looming at the end of the 60 days -- that the industry no longer can assume politicians will continue to support a never-ending skein of federal bailouts and loan guarantees for the halt and lame among U.S. corporations.
It may have been Wagoner’s misfortune to preside over GM during the economy’s long winter of discontent, but there’s no point in pretending that as CEO for almost nine years he bears no responsibility for its condition. Among other missteps, he established Hummer as a GM brand, which put the high-margin, gas-guzzling monkey on the company’s back, and helped murder the EV1 electric vehicle in 1999 (he was then president and chief operating officer), when alternative-fuel technologies needed to be nurtured, not eradicated.
Yet there are limits to the administration’s stringency. Fritz Henderson, GM’s new CEO, is like Wagoner, a career GM executive. That raises questions about whether the transition at the top will be as much of a fresh start as Steven Rattner, Obama’s chief auto restructuring advisor, contends.
The president’s remark Monday that he’s “absolutely confident that GM can rise again” also hints that more government support may be lurking in the wings, possibly via funding for a “controlled” GM bankruptcy, post-bankruptcy subsidies or an expansion of government-sponsored incentives for the purchase of the smaller cars GM needs to sell at a profit to remain alive. (The government has already pledged to guarantee payments under the warranties of new GM and Chrysler automobiles sold from now through the potential bankruptcy of either manufacturer.)
There’s no question that Obama can drive a comparatively hard bargain with the automakers because of the perception that damage from their collapse can be contained. Although the ripple effects of liquidating GM would be felt by hundreds of thousands of American workers, that’s a more drastic outcome than most observers expect.
The disappearance of Chrysler, which is more likely, would ripple somewhat less. Either event would spark a cascade of bankruptcies by suppliers and dealers, and possibly an increase of a percentage point or more in the unemployment rate, but Washington seems to believe that these consequences are somehow manageable.
The banks, however, still seem to have us over a barrel. The collapse of a major institution would raise fears of financial upheaval taking down the U.S. economy and rumbling far beyond our borders. That’s why Wall Street traders and bank CEOs can still swank around as though they were indispensable figures, worthy of the same salaries and bonuses they claimed in good times.
It will take more than the ouster of a single executive to cleanse big business of its sense of entitlement, even as it continues to dip into the Treasury with both hands.
My favorite anecdote from the Great Depression comes from Will Rogers, who attended a gala dinner of the U.S. Chamber of Commerce in 1934. He was accompanied by Jesse Jones, head of the Reconstruction Finance Corp., the era’s central bailout agency.
As every big financier at the dinner stood up to give a speech demanding to “keep the government out of business,” Jones scribbled on the back of a menu card exactly how much the agency had lent the man’s institution.
Rogers, as if warning that he had evidence of the hypocrisy of the evening, wrote later that he still owned “that menu card.”
Michael Hiltzik’s column appears every Monday and Thursday, and occasionally on other days. Reach him at email@example.com and read his previous columns at www.latimes.com/hiltzik.