Wagoner out? No, not yet.

Posted by: David Welch on August 6, 2008

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There has been a lot of media speculation about the fate of General Motors Corp. Chairman and CEO Rick Wagoner, much of it saying that he is under the gun or on his way out. But today, the company said that he’s not going anywhere. At the company’s board meeting early this week, the directors discussed the media speculation and voiced unanimous backing for Wagoner, according to company insiders. Lead director George Fisher also backed Wagoner up in an interview with the New York Times. The board didn’t take an official vote or issue a statement backing him at the meeting. But the matter was discussed in response to speculation in the press. There was no case made to boot him out.

Is it all just hot air? Right now, that’s all it is. But any question about Wagoner’s tenure is legitimate. The company just reported a second-quarter loss of $15.5 billion. Even taking out special items, GM lost $6.3 billion. One key reason: GM, like its crosstown rivals, was unprepared for rising fuel pries. No one knew oil would reach $140 a barrel this year. But remember that GM fell into crisis back in 2005 when oil got to $50 a barrel. Under Wagoner, GM wasn’t even prepared for that. He relied heavily on sales of gas hogs and mortgage loans at GMAC for profits. There was no backup plan. Plus, GM’s stock is trading around $10 a share, a 70% drop in the past year. Critics have more ammo than Fort Sill.

That said, it’s also not surprising that the board would back him. GM’s board has been extremely generous when it comes to showing patience. Wagoner has restructured GM’s business and taken out billions in cost over the past three years. The board also clearly endorsed his July plan to save or raise $15 billion in cash in the next 18 months through a mix of asset sales, cost cuts and debt. The trouble is that sales have fallen faster than Wagoner’s restructuring moves can bear fruit. Meanwhile, nearly every pitfall—spiking fuel and commodity prices, a tanking economy and the housing mess—have come to bite GM. So Wagoner has sympathetic ears on his board.

The question is, for how long? With such public backing, things would probably have to get a lot worse for the board to move. Or some outsider would have to snap up huge chunks of stock and squeeze the board. Absent that kind of radical change, Wagoner will stay for a while. He has groomed President and COO Fritz Henderson to take over. Henderson was promoted from CFO early this year. Sources close to Wagoner have said for years that the 55-year-old Chairman won’t work until he is 60. So Henderson, 49, could end up taking over in a few years. The way it looks, Wagoner will be able to personally coronate Henderson’s ascension to the top job.

Reader Comments

Dearborn Observer

August 6, 2008 7:56 PM

Surpassing even Bill Ford, Rick Wagoner has presided over a truly epic-scaled destruction of shareholder value during his tenure - something on the order of over $68 billion. I think the only reason he hasn't been replaced (beyond stupifying blindness and insularity on the part of the board): no one from the outside wants the job. Yes, short of getting a Nardelli-like private-equity-sized payout potential, what capable CEO in his/her right mind would want to throw themselves against a rock like GM? Not many sane ones, that's for sure. That's why Wagoner must sleep very sweetly at night, knowing he's in the soft bosom of the most secure job in Detroit.

ballbuster

August 7, 2008 5:27 AM

Apologists for Wagoner regurgitate the same excuses: don't blame Wagoner because nobody could have foreseen the high crude prices, or the housing bust, or the liquidity crises, or truck buyers switching to small cars. If shareholders pay an Apologist the same $20million salary that's paid to Wagoner, shareholders also deserve better Apologists than those offered on behalf of Wagoner. Shareholders did not paid Wagoner's $20mil salary to have his thinking like a high school graduate. The sorry state of GM under 10+ years of Wagoner's leadership is conclusive of one and only one thing: The Job is too big for Wagoner. While shareholders may praise his efforts, the year-in-year-out losses to competitors showed he just can't handle the job. Refusing to throw in the towel like a proud fighter who has the heart but not the skill or stamina to go the full 15 rounds against a powerful challenger, Wagoner needs the humane and sympathetic coach who will relieve him of his agony. It is cruel and inhumane to watch a handicapped man floundering and failing against overwhelming odds. It does not help GM or Wagoner's future that the Board publicly encourages Wagoner to fight on when Wagoner already suffered too many body blows qualifying as a TKO. To Wagoner's credit he has company: Lutz is an over-riped executive trying to relive at GM his younger-golden days that have long vanished. Welburn is blinded by his few styling sucesses that he can not acknowledge that his permanent absence from GM studio will revitalize the several divisions that have suffered under his leadership. One of these is the Cadillac division. Insisting on prismatic shape instead of classic curves, Welburn singlehandily relegated Cadillac to the minor league of contenders instead of champions. Mercedes and Lexus, and lately even Audi, ate Cadillac's lunch. To revitalize GM, it needs to discard cookie-cutters like Henderson and recruit the best and brightest from outside the old-boy-network, even if the next CEO comes from an aircraft manufacturer or a foreign car company. The question now confronting GM's Board is not whether it has exercise prudent patience with Wagoner but whether it is mocking the man by allowing him to humiliate himself before the world. Hell is paved with good intentions.

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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