Wagoner's ouster is the right move

Posted by: David Welch on March 29, 2009

RIck.bmp

General Motors Chairman and CEO Rick Wagoner is out. Treasury Department officials confirm that he was asked to step down and he accepted. And it is the right thing to do. As I have written before, Wagoner was dealt an incredibly difficult hand, one that almost no CEO in corporate America would want. But GM is a company plagued by decades of mistakes and a culture always thought there was a tomorrow no matter how bad things got. GM needed someone to remake the company. Wagoner was a measured incrementalist who didn’t have the chops to overhaul one of the largest and most entrenched companies in the world. Given the circumstances, it’s hard to know who could have made the drastic changes to fix GM. But it’s now clear that Wagoner’s pace of change made him the wrong man for the job.

There are the easy mistakes to pick at. He and predecessor Jack Smith spent $2.4 billion for a 20% stake in Fiat, which got them a couple diesel engines and some shared parts. Then they spent $2 billion to get out without having to buy the entire company and its problems. Wagoner killed the EV1 electric car, thus ceding the technology race to Toyota. While union wages, work rules and retiree costs were sapping GM’s ability to develop cars, new technology and market them, Wagoner never confronted a union that didn’t want to face a reality that GM could command the volume or pricing to pay what the contracts said they would pay.

While union obstinacy was something Wagoner didn’t challenge with much success, his organization never wanted to face how bad things were. At various points, GM sold 25% or more of its cars to rental fleets. As much as 10% were sold at deep discounts to employees or their friends and families. Throughout the decade, GM would push market share back toward 28%, where it started in 2000, if it spent thousands a car on incentives. Whenever the company pulled back on rebates and cheap finance deals, market share plummeted. Despite such poor quality of sales, Wagoner and his staff always figured that they could hold or even grow market share. That almost never happened. In fact, the company for years made most of its profits from writing loans as opposed to making cars. Its forecasts for sales became a joke among the parts makers who had to tool up to make components for GM’s cars.

He does get credit for bringing in Bob Lutz to spruce up the cars, and Lutz’s hand has helped GM make some impressive new models. But there, too, Wagoner needed prodding. His board pushed him to find a car guy. And it was former GM CFO John Devine (Who was not Wagoner’s first choice for the finance job. He picked a GM insider first and was turned down) who helped bring Lutz in.

Wagoner didn’t create the entire mess (though he certainly owns plenty of it) but he wasn’t the man to unwind it. In 2005, GM’s problems were obvious and required a real change agent to fix them. BusinessWeek detailed them in a May, 9, 2005 cover story. Wagoner didn’t really start tearing at some of those problems until the company lost more than $10 billion that year and he didn’t get into the rest of them until GM was technically insolvent late in 2008.

In the final analysis, many chief executives going back Frederic Donner, Roger Smith, Robert Stempel, Jack Smith and now Wagoner own this mess. Wagoner just happened to be there when years of mistakes and a dreadful economy broke the company’s back. Now someone else has to fix it. And what a job it will be.

TrackBack URL for this entry: http://blogs.businessweek.com/mt/mt-tb.cgi/

Reader Comments

pdbw

March 29, 2009 11:21 PM

Some good points, but I have to take issue with the "he killed the electric car" comment. Please. He killed a lead-acid-powered two-seater that didn't make any money. If he had really ceded the technology race to Toyota, we'd be driving Toyota EVs by now. Oh, that's right--we're not. Because Toyota didn't commit to building a production EV until this past January, well after GM, Nissan, and even VW.

norman knapp

March 29, 2009 11:59 PM

Does the White House know how to run a ca company better than the Executives?

d

March 30, 2009 12:19 AM

About a month ago I heard a GM employee say "Rick Wagoner is the man to lead us out of our financial difficulty..." HA!!

Balderdash- Why did it take so long to fire an incompetent individual??

d

March 30, 2009 12:19 AM

About a month ago I heard a GM employee say "Rick Wagoner is the man to lead us out of our financial difficulty..." HA!!

Balderdash- Why did it take so long to fire an incompetent individual??

Snoz

March 30, 2009 04:18 AM

GM's Board of Directors has the fiduciary duty to monitor the performance of its CEO on behalf of GM shareholders. Despite 30 years of surrendering market shares to the Japanese auto makers, GM Board of Directors did nothing about the glaring incompetence at the helm. Why? Because they were all puppets nominated by the same old-boy-network of GM. Even as GM under goes catastrophic melt-down for over a year, its Board does nothing but waits for UncleSam to fire Wagoner. Not to scapegoat Wagoner, incompetent Wagoner has plenty of company: Smith, Stempel, etc. Over the years, GM profit became increasing dependent on its financial business instead of auto manufacturing. Implementing aggressive monetary policy the bankers in the Federal Reserve encouraged more leveraged investments and risky loans as the "modern" way to make money instead of the "old" way through manufacturing goods. As this mantra from the Federal Reserve recruited ever more disciples, American business turned away from manufacturing things to manufacturing "paper wealth." The new business philosophy, a deriative of the Federal Reserve monetary policy, became: Why toil at the sweaty hard work of manufacturing things when you can sit on a piece of paper and get wealthy? GMAC, the financial arm of GM, naturally gravitated toward the higher rate of return but down-played the higher risk. When the real estate bubble burst followed by the start of US economic implosion, GM had already sold 51% of GMAC to Cerberus to raise cash to sustain its business as a on-going concern. But it was all to late. Instead of modernizing its auto-plants and doing R&D, GM instead got entangled with Wall Street "paper wealth" for too long. Ultimately, GM, bled dry, not only lost billions to Wall Street, but also lack the modern auto plants that can manufacture competitive cars. Today, GM cars could barely compete against the newer technologies of foreign auto makers: BMW, Mercedes, Toyota, Nissan, Subaru, Honda, etc. The moral of the this story is not only about the incompetence of corporate leadership, but how private bankers at the Federal Reserves concocted an aggressive monetary policy that ultimately caused the collapse of once giant American corporations: GM,AIG, Chrysler, CitiGroup, LehmanBros, BearStearn, MerrilLynch, BoA, Wachovia, WaMU, IndyMac, and etc.

david

March 30, 2009 04:32 AM

GM should move all the executive jobs to Southern California. How can they not realize what a joke their cars have become. Can you imagine a 1957 Chevy with that rediculous gold bowtie on its grill? What is up with the gold bowtie? It is a pathetic design cue. The designers from the 50's and 60's had taste; the gold bowtie would never have been considered by the old time GM "car guys."

Paul (Vw)

March 30, 2009 07:10 AM

I suppose Wagoner's political contribution(s) didn't help him either.

http://fundrace.huffingtonpost.com/neighbors.php?type=name&lname=Wagoner

canthony

March 30, 2009 11:52 AM

Southern California? Is this guy dreaming? Who would relocate any business to California, yet alone live there. The state is broke, run by liberals and full of people who haven't a clue. High taxes, no common sense and politicians owned by every special interest group known to mankind. What was once the state that lead the country is now just a big joke.

canthony

March 30, 2009 11:52 AM

Southern California? Is this guy dreaming? Who would relocate any business in California, yet alone live there. The state is broke, run by liberals and full of people who haven't a clue. High taxes, no common sense and politicians owned by every special interest group known to mankind. What was once the state that lead the country is now just a big joke.

Frank Coppola

March 30, 2009 07:01 PM

RE the comment: I have to take issue with the "he killed the electric car" comment. Please. He killed a lead-acid-powered two-seater that didn't make any money.
The EV-1 was the best automobile I ever owned It was a commuter car, and the reason it didn't make money is that GM never sold it as such, nor in fact make it generally available. Whenever people saw my EV1, they asked how come they couldn't get one.
And only the first editions were lead-acid, the subsequent ones had advanced batteries. I could drive about 110 + miles enough to commute tot he city and back. The car never let me down. It was clearly a great piece of design and engineering, and if GM had spent the money that they spent lobbying California to change it's laws, on further developing the EV1, they'd be a promising company today..

Frank

Frank Coppola

March 30, 2009 07:01 PM

RE the comment: I have to take issue with the "he killed the electric car" comment. Please. He killed a lead-acid-powered two-seater that didn't make any money.
The EV-1 was the best automobile I ever owned It was a commuter car, and the reason it didn't make money is that GM never sold it as such, nor in fact make it generally available. Whenever people saw my EV1, they asked how come they couldn't get one.
And only the first editions were lead-acid, the subsequent ones had advanced batteries. I could drive about 110 + miles enough to commute tot he city and back. The car never let me down. It was clearly a great piece of design and engineering, and if GM had spent the money that they spent lobbying California to change it's laws, on further developing the EV1, they'd be a promising company today..

Frank

Frank Coppola

March 30, 2009 07:03 PM

RE the comment: I have to take issue with the "he killed the electric car" comment. Please. He killed a lead-acid-powered two-seater that didn't make any money.
The EV-1 was the best automobile I ever owned It was a commuter car, and the reason it didn't make money is that GM never sold it as such, nor in fact make it generally available. Whenever people saw my EV1, they asked how come they couldn't get one.
And only the first editions were lead-acid, the subsequent ones had advanced batteries. I could drive about 110 + miles enough to commute tot he city and back. The car never let me down. It was clearly a great piece of design and engineering, and if GM had spent the money that they spent lobbying California to change it's laws, on further developing the EV1, they'd be a promising company today..

Frank

Frank Coppola

March 30, 2009 07:03 PM

RE the comment: I have to take issue with the "he killed the electric car" comment. Please. He killed a lead-acid-powered two-seater that didn't make any money.
The EV-1 was the best automobile I ever owned It was a commuter car, and the reason it didn't make money is that GM never sold it as such, nor in fact make it generally available. Whenever people saw my EV1, they asked how come they couldn't get one.
And only the first editions were lead-acid, the subsequent ones had advanced batteries. I could drive about 110 + miles enough to commute tot he city and back. The car never let me down. It was clearly a great piece of design and engineering, and if GM had spent the money that they spent lobbying California to change it's laws, on further developing the EV1, they'd be a promising company today..

Frank

PM461

April 2, 2009 07:00 PM

Wagoner seems to be OK with it: http://web.me.com/aiwnews/AIW_News/Braking_News/Entries/2009/4/1_%E2%80%9COne_for_the_Road%E2%80%9D_-_GM_CEO_Asked_to_Resign.html

Post a comment

 

About

Want the straight scoop on the auto industry? Detroit bureau chief David Welch , Dexter Roberts and Ian Rowley bring daily scoop, keen observations and provocative perspective on the auto business from around the globe. Read their take on such weighty issues as Detroit’s attempt at a comeback, Toyota’s quest for dominance and the search for an efficient car.

BW Mall - Sponsored Links

Buy a link now!