General Motors Death Watch 184: Resignation
Rick Wagoner is a lame duck. No matter how you look at it, it's clear that the failing, flailing CEO must go. Next week, The General's Board of Bystanders will meet to "discuss" the crisis. GM's dividend will disappear, triggering fresh anxiety (and some atta boys) from the financial markets and the media. The Bystanders should push Rick out of the RenCen penthouse, to glide to Aruba on his golden parachute. But they won't. They can't. Wagoner walking would be the final straw: an admission that GM's forked. And before he goes, Wagoner's got one more job to do…
Obviously, Wagoner doesn’t want to be GM's CEO when the artist once known as the world’s largest automaker (a.k.a. the world’s most profitable company) files for bankruptcy. Common sense suggests that Wagoner wants to be IN the lifeboat BEFORE the women and children (i.e. assembly workers) make egress… problematic. Or, preferably, he'd like to be watching the ship sink from the safety of a tax-free tropical island.
Remember that Wagoner’s banked well over $100m in pay and benefits during his tenure at the top. And no, they can’t take that away from him. (His pension is bankruptcy proof.) So, really, all Wagoner has to worry about is his “legacy.” He’s proclaimed that GM has enough liquidity to make it to end of ’08 (woo-hoo!), To leave on a high note, Rick's got to raise some money– say, $15b or so– and then quit before the well runs dry (again). There’s only one problem: who’s going to lend GM $15b?
There are two ways GM could secure that kind of cash. First, they could hock their foreign operations. In a way, that’s already happened. Instead of plowing overseas profits back into overseas operations– to fend off increasingly strong competition– GM NA has been using foreign income to prop-up, indeed, justify, the overall corporate bottom line. We don’t know exactly how much, from where and when this transfer has occurred, but we do know that GM NA sucks. Cash, that is.
Putting a lien on GM Europe, Latin America, et al. would be seven kinds of stupid. Although the same old management mistakes are beginning to take their toll abroad (overlapping brands, too many brands, non-competitive products), GM’s foreign empire is in relatively good shape. But the bottom line is the bottom line. The money raised by the loan would only stave-off a GM NA filing, not prevent it. GM has no high-profit replacement for light trucks to pull its ass out of the fire. When the inevitable occurs, the whole Empire would crash and burn.
The second, more likely strategy: secure federal loan guarantees and then hit-up the banks. As mentioned before, it's virtually a done deal; Uncle Sam (that's you) will back-up the notes needed to keep GM from filing for bankruptcy. It will be the perfect time for Rick Wagoner to leave– even though GM will continue to burn through the money and stay on course for Chapter 11.
C11's a good thing for GM. It's the only way it can prune its bloated dealer network and diseased brand portfolio. But again, Wagoner will do everything he can to NOT be the man in charge when– not if– the deal goes down. All of which leaves GM where we started, 183 episodes ago. Well, not quite…
Back at the beginning, I argued that all eight GM brands should be hived off into separate companies. Since then, Wagoner’s decisions have sucked the life blood (cash, distinctive models, brand equity) out of HUMMER, Buick, Saturn, Saab, Pontiac and GMC. What’s worse, he’s rearranged the automaker's structure to further blur their identities. At this point, no competitor, private equity firm or management buyout group would dare touch ANY of GM's brands.
These days, Cadillac and Chevrolet are GM’s only viable brands, and not convincingly so. Does anyone really think Caddy has what it takes to compete with BMW, Lexus and Audi? Even GM’s fiercest supporters are beginning to understand that the Volt will not be enough to rescue The General. Will the plug-in gas – electric hybrid even be enough to rescue Chevy in the face of the well-established Toyota Prius? The Honda Accord? Hyundai? Anyone? Bueller?
I used to believe that a better, stronger GM would arise from the ashes of Chapter 11. I am now resigned to the fact that it's too late. To use Car Czar Bob Lutz' terminology, all of GM's brands are damaged beyond recovery. Still, some good WILL come of this. Someone will sell something worthwhile in GM's stead.
Meanwhile, THIS is Rick Wagoner’s legacy: an enormous automobile company without a chance at survival. That pays $1m a week to its employees not to work (not including benefits). That pays $250m a month in interest payments. That bought car divisions it didn’t need and sold cash cows it did. That sank from 29 percent of U.S. market share to less than 19. That wiped away tens of billions of dollars from shareholder value. That lied to itself and the world that it was better than it was.
[NB: This is an updated version of the original post.]
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