Five views of Obama’s move on Wagoner and GM

A review of the government’s explanation for why it deems GM and Chrysler ‘unviable’ demonstrates precisely the sort of micro-level intervention in the two companies that the Obama administration had previously sought to avoid. For example, although the administration disputed GM’s contention that the global market conditions would arrest the rate of GM’s market share decline, it also blamed the company for retaining ‘too many unprofitable nameplates’ that ‘tarnish its brands’ and ‘demand increasingly scarce marketing dollars.’ Further, GM is slammed for producing cheap cars and selling them too cheaply. ‘These lower price points are an important impediment to enhanced GM profitablility and need to be reversed over time in order for GM to bring its margins into line with its-best class peers.’ What that means, in essence, is that the government wants to see GM produce fewer, more expensive cars.

The most outrageous part of all of this is that the government had to do the dirty work for GM’s board, which repeatedly backed Wagoner until the very end. The writing was on the wall, considering the performance of the century-old automaker since Wagoner became CEO in 2000 and chairman in 2003. For the Obama administration, change was clearly not coming fast enough. They grew tired of waiting for Wagoner and the GM board to get into gear. It’s a nearly impossible task for any executive to be bold enough to undo all he had done, to tear down all he had built and to admit that what might have been right before is wrong now. Inevitably, this requires new blood, a fresh perspective and someone at the helm with no love of the past.

With sweeping new power the White House will be deciding which plants will survive and which won’t, so in essence, this administration has decided they know better than our courts and our free market process how to deal with these companies. It’s been a long time since Washington has seen the kind of kowtowing that’s about to occur among members of Congress trying to curry favor with the administration to keep plants in their states open, and it will be interesting to see if the administration makes these decisions based on a red state and blue state strategy or based on efficiency and capable, skilled workers at each plant. This is a marked departure from the past, truly breathtaking, and should send a chill through all Americans who believe in free enterprise. I worry that in one fell swoop we’ve lost our moral high ground throughout the global community as it relates to chastising other countries that use strong arm tactics to invade on private property rights.

In President Obama’s speech about the Wagoner firing, as well as in Treasury term sheets for GM and Chrysler, there are multiple references to ‘the next generation of clean cars,’ to new CAFE-standard mileage increases, and to green power-train developments. All this is a big green climate-change priority for the new administration. But the simple fact is, small, tinny, and expensive green cars just don’t work for consumers. And even if those cars are designed better, the cost structure of the carmakers will have to be brought down so far that UAW wages will be forced below those of the non-union shops in Detroit south (including Honda, Toyota, and other foreign carmakers who are now producing in the United States). So add the green revolution to the industrial-policy plans of the White House. Expect a big increase in CAFE fuel standards, even though small cars are simply not profitable. And plan on bailout nation taking a new left-turn toward the kind of central planning that has held down economic growth in Europe and Japan for so very long.

What’s good for General Motors really is good for America after all. And vice versa. That’s the best way to read the sad but necessary -- in fact, long overdue -- departure of GM CEO Rick Wagoner. Give the Obama team credit, too, for replacing most of GM’s pet-rock board of directors, which put loyalty to Mr. Wagoner above duty to shareholders while the company Meanwhile, the two key questions for General Motors are who should lead the company and whether it really can successfully restructure without filing for bankruptcy. On the first question, I’d vote for an outsider. Fritz Henderson, the company’s president and GM lifer who’s replacing Mr. Wagoner, might be very capable, but the plain fact is that GM is far too inbred. Over the years the company has launched successful innovations ranging from a joint-venture plant with Toyota in California to the Saturn subsidiary to modular auto-assembly techniques in Brazil, but has failed to capitalize on any of them. As for bankruptcy, President Obama and task force chief Steve Rattner clearly would rather avoid that, for both GM and Chrysler. Politically, it’s a savvy move for them to give the companies one more chance to avoid bankruptcy. The president’s words yesterday will make it hard for him to back down.