Monday, March 30, 2009

So Now Obama Thinks the Automakers Aren't Viable?

Late yesterday word came down that President Obama pretty much fired General Motors CEO Rick Wagoner from his job. Obama did something that the GM shareholders didn't do for eight years, even though Wagoner oversaw declining sales, market share, and lackluster product introductions all because the Administration needed a scalp to claim:
Wagoner, 56, who spent 32 years with GM working all over the world, stepped down effective immediately, the company said in a statement early Monday. He was replaced as CEO by Fritz Henderson, the company's vice chairman and chief operating officer.

GM board member Kent Kresa, a former chairman and CEO of Northrop Grumman Corp. (NOC), was named interim chairman and said new directors will make up the majority of GM's board when a new slate is nominated for election at the company's annual meeting in August.

"The board has recognized for some time that the company's restructuring will likely cause a significant change in the stockholders of the company and create the need for new directors with additional skills and experience," Kresa said in a written statement.

GM shares tumbled 86 cents, or 24 percent, to $2.76 in premarket trading Monday. That is down 89 percent from its 52-week high of $24.24 on April 30, 2008.

The management shake-up, according to several industry analysts, shows that the administration is serious about forcing GM to change more quickly and dramatically than it did during Wagoner's nearly nine-year tenure as CEO.

Jeremy Anwyl, chief executive of the automotive Web site, called the move "political theater" to appease an increasingly bailout-weary public.

"American taxpayers are not happy," Anwyl said. "But this way you're able to point to Rick and say he's gone, and that creates an environment where the loans become politically palatable."

By all accounts, Wagoner made progress in fixing GM. While CEO, he cut its U.S. work force from 177,000 to roughly 92,000 today.
The stock market isn't reacting too well to the changes, given the stock price drop this morning.

Replacing Wagoner isn't going to fix GM. Ridding GM of the onerous contracts is a good start, but that means that the company has to go up against the unions, which are one of Obama's biggest backers.

The Administration is giving GM and Chrysler another 60 days to come back with a plan for viability, because he's now realizing what I've been saying for months - these automakers aren't going to last long and reorganization under the Bankruptcy Code is probably the best best for the long term survival of both companies.

Obama seems to think that another 60 days will give Wagoner's successor the time to force the unions to make concessions that will help pave the way to GM fiscal stability. Part of the problem is that when President Bush and now President Obama provided bailouts to the auto industry, it removed any incentives for the automaker or the union to proceed with the tough task of making the drastic and necessary decisions. They have only delayed those decisions, and have thrown billions of taxpayer dollars down that black hole, never to be seen again.

Obama or Bush could have saved GM and/or Chyrsler by ordering both to build thousands of new M1-A2 tanks and uparmored Humvees either directly or via license from General Dynamics not only to replace those that have been worn out through usage in Afghanistan and Iraq, but to restock and enlarge the military's capacity. They chose not to. That would have been cheaper than throwing billions at the automakers whose products aren't selling and which have production costs that exceed those of its competitors. It would have also improved the defense posture of the nation and incorporated the latest technologies and knowledge gained from years of combat in both Afghanistan and Iraq.

Instead, Chrysler is getting 30 days and $6 billion to complete a merger/restructuring with Fiat. If that effort fails, expect Chrysler to go the liquidation route.

And because Obama is busy trying to destroy what remaining value the automakers have with his pronouncements and limiting his options for GM by sending Wagoner packing, he's now creating yet another huge bureaucracy to provide government backing of warranties for GM and Chrysler because those companies may not exist for much longer. These are the kinds of decisions that will not only spell doom for those automakers, but destroys what little residual value those vehicles have on the secondary market.

It also means that Congress will inject itself into the day to day operations of the auto markets - and can determine that warranties offered by foreign automakers are too long, and outlaw them in order for the domestic warranties to remain competitive. This is anti-business any way you cut it, and limits consumer choices even further.

It also does nothing to actually save the US automakers, but expands government power in this arena at a time when we're already seeing just how incompetent it is in handling the fiscal and monetary policy.

MSNBC is reporting that Fiat and Chrysler have agreed to a deal to combine forces. Let's ignore the fact that Fiat hasn't been in the US market for 20 years and is coming off its own disastrous restructuring that nearly destroyed that company. Now, suddenly Fiat is the savior for Chrysler even after Obama's car task force found the merger wanting in January:
The planned Fiat-Chrysler alliance outlined in January may have been given a "fail" by the U.S. auto task force, but the companies at least can resit the exam in 30 days.

Documents released by the Obama administration show that Chrysler can't survive without merging with Fiat SpA. The U.S. government also has no plans to provide any additional funding to Chrysler unless it links with Fiat.

It's a position, auto industry analysts say, that Fiat isn't likely to pass up. For giving Chrysler access to its small car technology, research and platforms, Fiat would have a quick way to make and deliver its cars in the U.S. without starting from scratch.

Chrysler would benefit by getting access up to $6 billion in federal low-interest loans with the partnership and a way to sell its cars outside North America.

"It makes sense for them," said IHS Global insight analysts Rebecca Lindland. "The appeal here is that it is still cheaper for Fiat to come into the U.S. through Chrysler."

Under tentative terms worked out between the two auto makers, Fiat has agreed to give Chrysler access to technology, platforms and research worth $10 billion. In return, Fiat could take a 35% ownership stake in the company.

Fiat chief Sergio Marchionnne has already met with the Obama Administration's automotive Task Force and has voiced his approval of such a deal. He has also updated the committee on what would be done if Fiat were to partner with the company.
Chrysler CEO Nardelli is trying to keep people interested in buying his company's vehicles, even though people are going to shy away from those manufacturers who might no longer be there in a month's time. Extending warranty information isn't going to help that problem, but that's the tact Obama is taking. That's like using your finger to stop a leak in a dike when water is coming over the top and seeping underneath while turning the ground underneath into quicksand.

Now, Obama is saying that there are going to be painful givebacks? Where is the giveback to the taxpayer who has been taken on a multibillion dollar ride that still sees these same failing companies fail despite the "bailout" for bad business decisions and a refusal of unions to cut costs to be competitive with imports?

What we're witnessing are the death throes of a company that has been run into the ground, and given life support despite the fact that a DNR should have been put in place.

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