It's hard to feel sorry for ousted GM boss Rick Wagoner, who will receive US$20.2 million in retirement plan benefits from his struggling company. But will he actually get paid?
Last night our time, the US government decided the future funding of its Detroit car giants General Motors and Chrysler. And it may come as no surprise that Obama's administration has found their viability plans to be anything but viable.
It seems the biggest impediment to the saving of General Motors and the rest of the Detroit-based US motor industry is... the industry itself.
It doesn't appear to have imagination and smarts to create an attractive and viable path to resurrection.
The restructuring plans from GM and Chrysler demanded by the US government as a key part of their bids to secure more bailout loans failed dismally to reveal essential life support structures. This was the view of Washington's industry task force.
The White House toughened up in its attitude to the wobbly car manufacturers, insisting that GM needs a more aggressive restructuring and that Chrysler needs to form an alliance with Fiat to have a future.
President Obama is desperate for the US motor industry to survive. "It is a pillar of our economy that has held up the dreams of millions of our people," he said before indicating that further help was heavily conditional.
"But we also cannot continue to excuse poor decisions. And we cannot make the survival of our auto industry dependent on an unending flow of tax dollars."
Obama went on to use the B word, saying that if GM and Chrysler cannot come up with workable plans to return to profitability, they could have to resort to the bankruptcy process "as a mechanism to help them restructure quickly and emerge stronger".
"We cannot, we must not, and we will not let our auto industry simply vanish," Obama declared as he summed up his task force's findings.
Obama said that if the bankruptcy option was employed, the car giants can quickly clear away old debts that are weighing them down so they can get back on their feet and onto a path to success.
At the bidding of the president, GM chairman and chief executive Rick Wagoner has emptied his desk, as the task force indicated pessimism at the company's demand for an extra $US21.6 billion in loans.
Neither GM nor Chrysler had met the strict conditions laid down under an earlier recent $US17.4 billion government bailout.
The plans submitted by GM and Chrysler "did not establish a credible path to viability" the task force report highlighted.
Chrysler and Fiat have one month's grace (and money) to come together and work out a path to cleaner, fuel efficient engines and plants within the US.
But while GM's viability plan and current company restructuring is not good enough to get more dough, the Obama administration will support the carmaker for another two months while it 'aggressively restructures' under new leadership - and the watchful eye of its auto industry task force.
GM confirmed Wagoner's immediate resignation and said he would be replaced by bean counter Fritz Henderson, the company's current president and chief operating officer.
Wagoner, 56, was named president and CEO in 2000, and became chairman in 2003.
Wagoner had been well regarded as a manager and a handy negotiator. He had pushed to resize, but didn't appear to sum up the urgency of the situation. The economic downturn exposed GM to the dire predicament it is now in.
GM has lost about $82billion since 2004 as its problems grew in the US market.
It is no Wall Street honey either. GM has lost about 95 per cent of its share value since Wagoner took over as CEO, plunging from $70 a share to less than $4 now, and its market share has fallen roughly 10 percentage points.
Obama had recently blamed mismanagement over the years for some of the vehicle industry's severe financial problems.
"We think we can have a successful US auto industry," Obama said in a television interview. "But it's got to be one that's realistically designed to weather this storm and to emerge ... much more lean, mean and competitive than it currently is.
"That's going to mean a set of sacrifices from all parties involved - management, labour, shareholders, creditors, suppliers, dealers. Everybody's going to have to come to the table and say it's important for us to take serious restructuring steps now in order to preserve a brighter future down the road," he said.
If the new guy in the White House can see it so clearly, what have the stumblebums in Detroit been doing for the past few decades?
Obama Administration New Path to Viability for GM & Chrysler
Viability of Existing Plans:
The plans submitted by GM and Chrysler on February 17, 2009 did not establish a credible path to viability. In their current form, they are not sufficient to justify a substantial new investment of taxpayer resources. Each will have a set period of time and adequate amount of working capital to establish a new strategy for long-term economic viability.
While GM's current plan is not viable, the Administration is confident that with a
more fundamental restructuring, GM will emerge from this process as a stronger more competitive business. This process will include leadership changes at GM and an increased effort by the U.S. Treasury and outside advisors to assist with the company's restructuring effort. Rick Wagoner is stepping aside as Chairman and CEO. In this context, the Administration will provide GM with working capital for 60 days to develop a more aggressive restructuring plan and a credible strategy
to implement such a plan. The Administration will stand behind GM's restructuring effort.
After extensive consultation with financial and industry experts, the Administration has reluctantly concluded that Chrysler is not viable as a stand-alone company. However, Chrysler has reached an understanding with Fiat that could be the basis of a path to viability. Fiat is prepared to
transfer valuable technology to Chrysler and, after extensive consultation with the Administration, has committed to building new fuel efficient cars and engines in U.S. factories. At the same time, however, there are substantial hurdles to overcome before this deal can become a reality.
Therefore, the Administration will provide Chrysler with working capital for 30 days to conclude a definitive agreement with Fiat and secure the support of necessary stakeholders. If successful, the government will consider investing up to the additional $6 billion requested by Chrysler to help this partnership succeed. If an agreement is not reached, the government will not invest any additional taxpayer funds in Chrysler.
A Fresh Start to Implement Aggressive Restructurings:
While Chrysler and GM are different companies with different paths forward, both have unsustainable liabilities and both need a fresh start. Their best chance at success may well require utilizing the bankruptcy code in a quick and surgical way. Unlike a liquidation, where a company is broken up and sold off, or conventional bankruptcy, where a company can get mired in litigation for several years, a structured bankruptcy process - if needed here - 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 while they keep making cars and providing jobs in our economy.
A Commitment to Consumer Warrantees:
The Administration will stand behind new cars purchased from GM or Chrysler during this period through an innovative warrantee commitment program.
Appointment of a Director of Auto Recovery:
The Administration also announced that Edward Montgomery, a top labor economist and former Deputy Secretary of Labor, will serve as Director of Recovery for Auto Workers and Communities. Dr. Montgomery will work to leverage all resources of government to support the workers, communities and regions that rely on the American auto industry.