Why I Have No Problem With The Government Firing Rick Wagoner

Call me skeptical that since the Obama administration’s auto task force ousted General Motors CEO Rick Wagoner it means the government is going to take over and ruin the auto industry. I think Wagoner’s list of accomplishments (or lack thereof) shows that he deserved to be gone long ago. After all, GM stock went from $60 to $2 under his tenure as CEO.

As for whether the government should have the right to force him out, why shouldn’t they have the same power that any other creditor or investor would have when trying to help a company avoid bankruptcy? Private equity invests in distressed companies all the time and as a condition of such investments always has a say in the turnaround plan, including replacing a chief executive. Having such power is the only way they feel comfortable that adequate changes will be made to somewhat protect their investment.

The government is unfortunately in the drivers seat in this case because nobody else will come to GM’s aid in its current form. By doing so, however, they should have the same rights as anybody else. No more, no less. Whether they should have even tried to prevent a GM bankruptcy is another question entirely, and a very valid one at that. I have no problem with someone arguing against that, but that really has nothing to do with the Wagoner situation.

The Obama team has decided to continue the public aid that the Bush team started, probably to try and avoid further destabilizing the financial system and economy. Reasonable minds can (and are) disagree over whether that is the right thing to do or not, but Rick Wagoner had to go regardless. Don’t forget, under his leadership, even when the economy was booming GM North America was in the red.

What about Wagoner’s replacement, Fritz Henderson? Well, I don’t think the government had a hand in choosing him. He openly and proudly announced that he was a lifelong GM’er and that Rick Wagoner was his mentor. Yikes, I guess the jury is still out on whether that is change we should believe in or not.

Full Disclosure: No position in GM at the time of writing, but positions may change at any time (I don’t expect this to change in this case)

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2 Thoughts on “Why I Have No Problem With The Government Firing Rick Wagoner

  1. I am curious to hear your opinion of the industry in general.

    With sharply decreased sales in both new and old cars, amortization is piling up and is bound to eventually explode.

    Counting on that, sooner or later an auto maker is going to see notable increase in sales and respectively the stock.

    Who would be the best candidate? Is F stable enough to bet on?

  2. Chad Brand on April 9, 2009 at 12:02 PM said:

    Personally, I have little interest in the U.S. automakers as investments. I just don’t see them getting to sustained profitability anytime soon (they weren’t even there in the mid 2000’s) and without that I really can’t value them with any high degree of confidence. If one wanted to play Ford as being the one that will survive, I would suggest looking at the bonds rather than the stock.

    As for equities in the sector, if I had to own an auto stock, I would buy Toyota TM most likely. It is down a lot and you are getting strong management and a high quality product portfolio. There will be people who make good money trading in and out of the struggling U.S. companies, but you have to get the timing exactly right and that’s not a game I, personally, like to play.

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