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Obama's Tough Love for Detroit
Emmanuel Dunand, AFP / Getty Images
The White House hard line is just what the auto industry (and the market) needs. How did Republicans become the party of coddling underperforming CEOs?
Something important was missed yesterday in all the news about General Motors. I’ll give you a hint: Which U.S. president fired GM’s CEO, and which one left in place the man who presided over some of the biggest flops (both financial and products) in the failing car company’s history? Now, which U.S. administration made incisive and direct comments about the causes of GM’s malaise, and which administration made happy talk about the small-town joys of automobile manufacturing?
You know the answer already, so I’ll just skip to my real questions: How did the Democrats become such hard asses about firing underperforming CEOs of underperforming companies that take government money? How did the Republicans become the party of coddling the same underperforming CEOs? Why is it that Republicans want to give billions of dollars to messed-up banks and autos companies so that the same screw-ups who screwed-up can screw around some more? How can it be that some of the most thoughtful and incisive analysis of the roots of GM’s problems have come in a report this week from the Obama administration?
Wagoner was given three crazy-vague things to do by President Bush back in December, and he didn’t complete any of them. Not one.
Not to put too fine a point on it, but what the hell has gone wrong with the world when the reasoned economic thinking is coming from the left and the cuddly stuff is coming from the right? Next thing you know we’ll find out that the U.S. debt has grown faster under financially hawkish Republican administrations than under predictably spendthrift Democrat administrations. I mean, where would that leave us? But wait, that’s true too. Does nothing make sense anymore? Next thing you know that loon Glenn Beck will have a hit TV show.
Most of what people said should happen in bailouts—fire underperforming management teams, credibly threaten bankruptcy, set real goals, and then nail management’s ass to the wall if it misses them—has now happened in the auto bailout. And it has created a mess. After all, how does one remain tirelessly partisan when you, as a Republican, say, are forced to defend a CEO like GM’s Rick Wagoner?
Granted, Wagoner is, by all accounts, a nice enough guy, but he was given three crazy-vague things to do by President Bush back in December, and he didn’t complete any of them. Not one. He didn’t even credibly bluff that he had. How do you get to stay CEO without being able to find some MBAs to help you make that sort of stuff up?
And it gets worse. Because according to the auto-viability assessment released on Monday, GM CEO Wagoner’s turnaround plan was more like a “dancing in place” plan, with losses stretching out to the horizon, or at least until 2014. The predictions were deemed optimistic, the strategies late and slow, and overall Wagoner came off as a trustafarian who’d spent the last few months skiing at Vail.
Now, however, Republicans must defend him. Of course, they are mostly settling for caviling noisily at the idea of the Obama administration getting all statist and socialist by telling GM that Wagoner had to leave. That’s wrong, huffed a procession of congressional Republicans today.
Of course it’s wrong. Tell us something we don’t know. Does anyone really want the administration picking management teams at public companies? No way. Judging by the pace at which open Treasury positions are being filled, your average billion-dollar company would end up staffed by a CEO, some secretaries, a few summer students, and some photo-copier abusing temps.
Saying it’s wrong, however, doesn’t say what we should do instead. What does Congress propose the administration do? Keep pumping in money while appointing some fellow-traveler bloggers to run GM? Put John Boehner in charge? Await further instructions? Who knows, because the Republicans are deafeningly quiet with practical ideas with respect to handling failing bailout recipients, like GM, and their management.
Of course, the ambidextrous ironies of the current situation work both ways. Democrats are out of their comfort zone, too. Watching a parade of Democratic congressional sorts applaud as Obama implies that both a GM and a Chrysler bankruptcy are very likely in our future is surreal. You imagine them next hiding from their assistants waving cellphones with calls from livid Rust Belt mayors who see the remnants of their manufacturing base turning into Toyota parking lots.
The auto-industry bailout shows how the economic problems have created a political mirror-world. Instead of bipartisanship, we now have gender-bending trans-partisanship, with everyone crossing the aisle at once and occupying the other party’s still-warm seat. If only for the sake of Fox News and others trying gamely to defend the financially indefensible, let’s hope it stops right here.
Paul Kedrosky is the editor of the business blog Infectious Greed. He's a senior fellow at the Kauffman Foundation, where he is focused on entrepreneurship, innovation, and the future of risk capital. He is also a strategist with Ten Asset Management, a Southern California institutional-money-management firm.
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Paul Kedrosky is the editor of the business blog Infectious Greed. He's a senior fellow at the Kauffman Foundation, where he is focused on entrepreneurship, innovation, and the future of risk capital. He is also a strategist with Ten Asset Management, a Southern California institutional-money-management firm.
I've lived in Detroit for 30 years, literally next door to some of the guys who run the auto industry. This town has been in a perpetual recession, even considering the "success" of SUVs. The guys in charge have failed. If my house is ever going to regain its value, if the shuttered storefronts in my town are ever going to be occupied, if my kids are ever going to grow up and want to come back here, if there's any chance I will spend any of my retirement years here, then the industry that can and should sustain us needs new leadership. I'm happy that Obama has taken over. At least somebody is showing some leadership around here -- even if he's in Washington!
Whether CEOs are "underperforming" is not the business of the State; it is the business of the shareholders; it's THEIR company. Since when do Americans so readily look to the government for help and give up their freedom in the process? If Obama knew how to run a company he would have executive experience--he doesn't. Why in the world would Americans trust anyone without business experience to run a business? Big government needs to keep its grubby hands off big business. They don't know what they're doing.
This whole thing makes me laugh .. GM makes how many brands and models of cars ?? so many I can't keep count .. can't keep track .. and these vehicles are garbage. .. drive and Toyota or a Honda and see what I mean .. night and day !!
My point ? I saw this coming years ago .. I wondered how it was possible for these companies to be so large .. well .. I don't wonder anymore .. I was right along .. just took the rest of the world a while to catch on ...
And these "attack adds" they are now posting against Honda is soo laughable .. so while GM is in huge trouble, they go on TV and act superior and try to bully their competitors .. ugly ugly ugly ..
So talk about bail outs .. talk about CEOs .. talk about government involvement ... the bottom line is, you make a crap product, you will fail. Goodbye GM.
SpeakEnglish ... Apparently GM doesn't know what it's doing either .. not so big business anymore.
That might have made some sense 20-30 years ago SpeakEnglish, but the shareholders no longer own companies. Financial institutions own the majority of shares in this country. The same institutions relying on the government to sustain them. If your friend said to you I need 10 grand to help my struggling small business and you give them that money, you certainly have the right to have things done your way, at least until you are paid back. Same thing in this situation. What is being more fiscally conservative? Writing a blank check and saying go do as you will, or handing the money and actively having a say in the use of those funds to ensure that the money is being spent in a responsible fashion?
"If Obama knew how to run a company he would have executive experience--he doesn't."
Not quite. Wagoner had "executive experience" and ran the company into the ground. Your logic is flawed SpeakEnglish.
"How did Republicans become the party of coddling underperforming CEOs?..."
Excuse me? Why are you Obama cheerleaders completely ignoring the Dems role in all this mess? I'm no Repub but there is an awful lot of revisionist history going on here!
@SpeakEnglish:
"Since when do Americans so readily look to the government for help and give up their freedom in the process?"
Since 9/11, when we were told that by doing so, we would be safer. Sorry friend, that genie is out of the bottle, and it's only going to get bigger regardless of who's running the country.
Over $26 billion in corporate welfare to the auto corporations......send some of that tough love this way!
Obama is doing the executive job he was voted in to do.
Obama isn't attempting to run the company, he's holding Wagoner accountable to the agreement he made. Obama IS the executive of the organization that bailed GM out, and as a voter if he hadn't held them accountable for spending our money wisely Obama the Chief Executive wouldn't be doing his job.
Bravo Barack!
Guy above refers to the "Dems role in all this mess." Excuse me? The current administration is the clean-up crew that has to deal with the mess of the GOP's big unrestrained party of the Bush years. That party even included the beginning of the bailouts back shortly before the 2008 election--in September.
And the Publicans didn't just suddenly become a party of CEO coddlers. The GOP's main aim for years has been pampering big business--at the expense of all else.
This article is just an attack on the Republican party. It's irresponsible journalism because it leaves out important information. Maybe if the author was more interested in reporting the news, we would be get a better picture of what's really going on.
For example, the title assumes that Obama is being 'hard' on automakers just because he fires 1 CEO. So what?? The company is still a zombie. Being 'hard' on automakers means letting them fail as capitalism intended. And letting companies fail is exactly what many republicans and conservative voices have been calling for. Think Ron Paul, Joe Scarborough, Peter Schiff and others. It's a fact that the most vocal group against excessive spending and expansion of government have been conservatives--not necessarily republicans, but conservatives.
So the real truth is the exact opposite of what this article is saying. Keep up the good work, Kedrosky.
"drive and Toyota or a Honda and see what I mean .. night and day !!"
I have, and I suspect you haven't driven the best that American car makers have to offer. Compare a Cadillac to a Camry and honestly try to tell me you prefer the Camry. I have owned quite a variety of cars, American, Japanese, Korean, and German, to date the two finest Autos I have owned have both been American made, with the Germans and Koreans coming in just behind.
We should ask ourselves why it is that Banks get relatively no-strings attached bailouts, when compared the Auto industry, which employs far more American workers. Since when did making actual things become less important to our country than shuffling money around? Where have our priorities gone? Why do bank CEO's get lunch at the white house and GM's CEO get the boot? Has management in the Auto industry cost this country even a fraction of what poor management of our financial institutions has? 1/10th? 1/100th?
@SpeakEnglish:
"Whether CEOs are "underperforming" is not the business of the State; it is the business of the shareholders; it's THEIR company."
If the shareholders don't like it, all they have to do is stop asking the government for money. Seems pretty simple to me.
The American auto makers need to fail in order to survive. It's that simple. It may be the very thing they need. Terrible management, poor planning, too many product lines, always playing catch-up... they spend more on health insurance then they do on steel.
A CEO should be paid in relation to how well a company is doing. If profits are high, their salary should match. (visa/versa) The weight of debt the carry from the Unions is the white elephant in the room. They get better salaries and benefits then even the other auto makers which actually MAKE A PROFIT. The old saying... "something has to give".
I'm certainly NOT saying it is the employees fault. But there is a much bigger picture that most people don't see.
SpeakEnglish,
In principle yes, but when they only exist because of government money... the government has every right to have a say. It is comparable to having a business and taking out a loan... if you don't pay back the loan... eventually you won't have a business.
Look around the roads and highways in the US today ...... European , Japanese and Korean cars are everywhere and the big 3 of GM ,Chrysler and Ford are loosing out to customers who consider foreign automobiles to be of better quality, more reliable and one would assume better overall value than our home grown varieties.
I believe the leaders of the American car industry lost the vision and direction of producing cars the US public want to buy as much as 10 to 15 years ago and to survive in a global competitive economy the US auto industries need to have innovative and creative leadership to develop cars that the American public want.
If German, Italian, British , Japanese and other foreign car companies, can manufacture outside of the US , ship and import to the US while remaining competitive Vs US cars.........then why is there not a similar export trade in US cars to the rest of the world , ..........in Europe and the far East countries , American cars are rarely seen on the roads and why is this ?????
The US auto industry has been on the skids for years and the leaders have not been innovative or resourceful enough to make it stronger and they need to step aside and make way for smarter people to fix the problems
Unfortunately , an individual opinion such as Snakehead's appreciation of American cars does not help the problems the US car industry finds itsellf in today ..... his example of a Cadillac which is a prestige mark and comparing it to a Toyota Camry is not a good comparison ,.Cadillac is in the price range that competes with and should be compared to the likes of Lexus, Mercedes , BMW and Audi automobiles
Look around the roads and highways in the US today ...... European , Japanese and Korean cars are everywhere and the big 3 of GM ,Chrysler and Ford are loosing out to customers who consider foreign automobiles to be of better quality, more reliable and one would assume better overall value than our home grown varieties.
I believe the leaders of the American car industry lost the vision and direction of producing cars the US public want to buy as much as 10 to 15 years ago and to survive in a global competitive economy the US auto industries need to have innovative and creative leadership to develop cars that the American public want.
If German, Italian, British , Japanese and other foreign car companies, can manufacture outside of the US , ship and import to the US while remaining competitive Vs US cars.........then why is there not a similar export trade in US cars to the rest of the world , ..........in Europe and the far East countries , American cars are rarely seen on the roads and why is this ?????
The US auto industry has been on the skids for years and the leaders have not been innovative or resourceful enough to make it stronger and they need to step aside and make way for smarter people to fix the problems
@rennie -- Just let companies fail. Just let the big banks fail. Can you list the first 10 things that would happen to America and to your fellow Americans on the very day we allowed that to happen? Because, if you can, rennie, you just might be willing to rethink your ideology.
Please...just stop making crappy cars. Imitate, duplicate, steal ideas if you have to, but the Japanese (japanese named, but actually U.S. made) models are ripping you guys apart. I don't care about what country the car represents (considering my last Ford was made in Mexico) but the quality does matter. These companies just need better designs and a little creativity. No more SUVs and canyon jumping trucks...not all Americans want to be Commando (obscure Arnold Schwarzenegger reference).
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SpeakEnglish
Whether CEOs are "underperforming" is not the business of the State; it is the business of the shareholders; it's THEIR company.
Yes, that's the point
they took government money
they are owned by our government
what is confusing here
"Unfortunately , an individual opinion such as Snakehead's appreciation of American cars does not help the problems the US car industry finds itself in today ..... his example of a Cadillac which is a prestige mark and comparing it to a Toyota Camry is not a good comparison ,.Cadillac is in the price range that competes with and should be compared to the likes of Lexus, Mercedes , BMW and Audi automobiles "
Granted, a Lexus is a more fair comparison to a Cadillac, of course a Lexus is essentially an upgraded Camry. I'll still take my DTS over any Lexus. In fact I traded in my E series Mercedes when I bought the caddy and greatly prefer the American steel. I would invite you to compare price and performance between a CTS and a Camry which are similarly priced when comparably equipped. We can, and do make exceptional cars in this country, the problem is, that tends to be the exception rather than the rule.
You miss my greater point however, which is to point out the double standard in bailouts. Banks and financial institutions get exponentially more money, with fewer strings, after having caused more damage to our economy then the auto industry could in a hundred years of poor management. There lies the outrage, there lies the fundamental problem with the approach Washington has taken (under both administrations). We need to value making things over making a quick buck. We need to value workers, not suits who grab our cash and run.
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"How did the Republicans become the party of coddling the same underperforming CEOs?" What a question! The Republicans have always been closely tied to business and the rich. They never cared about _how_ businesses thrived or how the rich got rich. They have never cared about the middle class or the poor, and they struggles they face..
Thank you.
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