President Barack Obama is commander in chief and chief executive of the U.S. government, and after what transpired Monday, he is now in many respects chief executive of the U.S. auto industry too.
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Hail to the chief executive in chief.
Nobody wanted circumstances to reach this point. Obama himself must have hoped CEO Rick Wagoner could turn around General Motors or he would not have given Wagoner a crucial five months to show his worth.
Time expired Monday. Wagoner did not deliver a viable turnaround plan by the end of March, as he needed to do, and so he is out the door.
Wagoner was the consummate manager. He knew GM and Detroit. But in the end, the cuts he offered were not steep enough, his view on a possible bankruptcy not broad-minded enough, and his capacity for leadership not demonstrable enough. He had to go.
So it should go in business, yet accountability such as this is the exception, not the rule. Imagine everyone’s surprise if, contrary to conventional wisdom, the government actually can manage a business the way the management textbooks say it should be done.
When the government sinks $17.4 billion of taxpayer money into GM and Chrysler, and when Detroit needs another $21 billion within the next 60 days, the government should demand results.
Uncle Sam pays his money, he sets the performance targets, and not even one of the country’s most powerful chief executives gets to stand in the way. If only the government had been as scrupulous with the $170 billion invested in insurance giant AIG, or the $50 billion sunk into Citigroup, we might have been spared the shameless squandering of Wall Street bailout money.
“If the carmakers don’t like this, they can say no to the government money,” said Glenn Fong, an economics professor at the Thunderbird School of Global Management who has written about industrial policy. “What is more dangerous than all these demands is a blind handout without any.”
The risk with any government involvement, of course, is that politics will get in the way of good corporate strategy. Obama and his Detroit team, led by buyout investor Steve Rattner, need to help devise and direct a turnaround strategy while ignoring the inevitable impact on electoral politics. They need to set strategy without micromanaging.
Good luck with all that.
Yet the plan Obama laid out Monday evidences a promising first step. Bondholders need to take a hit, Obama warned, but workers will too. A bankruptcy filing may need to be part of the equation, a step Wagoner refused to consider.
That’s the way a business person is expected to look at GM’s problems. It’s not the way a politician is expected to act: pointing fingers at labor groups concentrated in key swing states across the Midwest.
In fact, Obama indicated in his speech Monday that he intends to mix sound business strategy with his economic stimulus policies. He intends to create tax incentives and promote lending programs to encourage car buying, and would address the fallout from a possible bankruptcy filing by providing government backing for GM’s new-car warranties.
People are saying the U.S. has embarked on a new industrial policy with its investment in Detroit, Wall Street and other businesses. With the ouster of Wagoner and the redirection of GM’s strategy, it seems possible that industrial policy might yield good corporate strategy too.
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Presidential pressure
Obama says government-sponsored bankruptcy could be part of a solution for GM, Chrysler. PAGE 1