GM’s Wagoner quits under U.S. pressure as 2nd bailout nears

GM’s Wagoner quits under U.S. pressure as 2nd bailout nears
 

Henderson is CEO, Northrop’s Kresa interim chairman

Automotive News | March 30, 2009 – 12:01 am EST

 

WASHINGTON (Reuters) — General Motors CEO Rick Wagoner has resigned under pressure from the Obama administration as the government prepares to announce today a second bailout for the company and Chrysler LLC.

Wagoner, a career GM executive and CEO since 2000, is stepping down as the top U.S. automaker struggles with a recession-fueled sales implosion that has pushed GM and many of its suppliers and dealers to the brink of failure. He will be replaced by COO Fritz Henderson.

"For them to change captains right in the middle of the rapids is not something GM would have done, but now (President Barack) Obama or (Treasury Secretary Timothy) Geithner can say, ‘We’ve asked them to make the ultimate sacrifice,’" said Aaron Bragman, an analyst with IHS Global Insight.

Wagoner’s confirmation that he had been asked by White House officials to step down followed word late Sunday that GM and Chrysler will each be given capital and time to accelerate their attempts to restructure and survive.

GM will be given 60 days to determine the best path forward.

Chrysler will be given 30 days to complete a proposed alliance with Italy’s Fiat SpA. If the deal is successful, the government could extend up to $6 billion in new assistance.

Wagoner said in his statement that he met with administration on Friday. "In the course of that meeting, they requested that I ‘step aside’ as CEO of GM, and so I have."

He thanked GM’s stakeholders for their support. And, to employees, he said this:

"GM is a great company with a storied history. Ignore the doubters because I know it is also a company with a great future."

Rick Wagoner’s troubles

Rick Wagoner took over as GM’s CEO in 2000, overseeing a 95 percent decline in market value for the nation’s largest automaker. GM has lost about $82 billion since 2005 when its problems began to mount in the U.S. market. Wagoner came under great fire for his stewardship of GM late last year when U.S. lawmakers were debating a bailout for GM. Wagoner had repeatedly said that he intended to stay on, and GM’s board has offered unanimous support for him.
Here are some key events that led up to Wagoner’s resignation:
MARCH 16, 2005: Slumping North American auto sales lead GM to warn that 2005 earnings will be as much as 80 percent below its prior forecast, making it the worst performance since 1992. The warning spurred Standard & Poor’s to caution that it could downgrade GM’s debt to "junk" status.
FEB. 20, 2006: Fortune magazine cover story says GM headed for bankruptcy. The story cites increasingly grim assessments by Moody’s and S&P that doubt GM will be able to turn around its North American business, which then had a market share of 26 percent.
JULY 15, 2008: GM announces a plan to cut costs by $10 billion, suspend its dividend and sell up to $4 billion in assets, such as its Hummer brand, in a bid to shore up cash and survive the deep industry slump. The hurried restructuring, GM’s second in six weeks, was forced by high fuel prices, a consumer shift away from low-mileage trucks, the weakest U.S. auto sales in a decade and growing investor doubts about the automaker’s ability to ride out the downturn.
NOV. 21, 2008: GM decides to return two of its leased corporate jets after intense criticism by lawmakers after Wagoner flew to Washington in a private jet to ask for public funds.
DEC. 19, 2008: GM receives $13.4 billion in emergency government loans from the Bush administration to stave off bankruptcy and prevent a collapse that would have cost hundreds of thousands of jobs.
DEC. 19, 2008: The money was part of the $700 billion Troubled Asset Relief (TARP) program. Under the loan’s terms, a March 31 deadline is set for GM and Chrysler, which received $4 billion, to prove that they can restructure enough to ensure their survival.
JAN. 15, 2009: GM said it expected U.S. auto sales in 2009 to drop to their lowest level in 27 years, cutting its forecast to the low end of prevailing expectations and making it all but certain the automaker will post a fifth straight year of losses.
FEB. 17, 2009: GM requests an additional $16.6 billion in U.S. government loans, for a total of up to $30 billion in loans, and said it would run out of cash as soon as March without new federal funding. It also said it had not reached deals with bondholders and its major union to reduce some $48 billion in debt but would work to reach those agreements by the end of March. It promised to step up cost-cutting by reducing its global workforce by 47,000 jobs this year and cutting five additional U.S. plants by 2012. In addition, GM said it would cut its U.S. workforce by another 20,000 jobs by 2012.
MARCH 12, 2009: GM says it has told U.S. officials it can survive without $2 billion in additional aid it had requested to get through March.
MARCH 16, 2009: Advisers to GM bondholders say they presented a framework plan to President Obama’s autos task force and GM that provides the company’s best chance for an out-of-court restructuring. They say the plan for a debt-to-equity exchange is consistent with U.S. government restructuring requirements.
MARCH 29, 2009: Wagoner resigns under pressure from the Obama administration just two days before the March 31 deadline it had to prove to the U.S. government it can become viable and worthy of new federal assistance.

 

Henderson named CEO, Kresa chairman

Henderson, 50, had been widely considered the leading internal candidate as Wagoner’s successor.

GM also announced that Kent Kresa, chairman emeritus of Northrop Grumman Corp., would be interim non-executive chairman of GM’a board. Kresa has been a GM director since 2003.

Obama last week cited mismanagement "over the years" for some of the auto industry’s severe financial problems, a point that stung Wagoner since his counterparts at Ford Motor Co., Alan Mulally, and Chrysler LLC, Bob Nardelli, are relative newcomers brought in from outside the industry.

GM has lost about $82 billion since 2004 as its problems mounted in the U.S. market. GM has lost about 95 percent of its share value since Wagoner took over as CEO.

GM has failed to clinch needed concessions from bondholders that government officials had set as targets to justify further aid.

Together, GM and Chrysler have asked for another $21.6 billion in government loans to ride out a global sales slump and the weakest U.S. market for new cars in almost 30 years. Ford, which is also struggling, is not seeking federal help.

Not enough

Obama said earlier Sunday that GM and Chrysler have not done enough to save themselves since being granted a $17.4 billion bailout in December. GM has received $13.4 billion and seeks as much as $16.6 billion more; Chrysler has accepted $4 billion and says it needs an additional $5 billion.

"They’re not there yet," Obama said in a taped interview on the CBS-TV news program "Face the Nation."

"We think we can have a successful U.S. auto industry. But it’s got to be one that’s realistically designed to weather this storm and to emerge … much more lean, mean and competitive than it currently is," Obama said.

"That’s going to mean a set of sacrifices from all parties involved — management, labor, shareholders, creditors, suppliers, dealers. Everybody’s going to have to come to the table and say it’s important for us to take serious restructuring steps now in order to preserve a brighter future down the road," he said.

GM and Chrysler have run through most of the initial bailout and are at risk of bankruptcy without immediate help.

Chrysler has said it needs additional funding as soon as Tuesday to avoid a cash crisis.

Unfinished overhaul

But neither automaker has finished the cost-cutting overhaul dictated by the terms of the auto industry bailout launched by the Bush administration that set a deadline of March 31 for determining whether the companies can be saved.

Analysts say that presents a dilemma for the Obama administration. GM and Chrysler employ almost 160,000 U.S. workers and allowing the automakers to fail would cause widespread hardship, especially in the industrial-belt Midwest, at a time when the economy remains mired in recession.

As confidence has grown that the White House will not push the car companies into bankruptcy, it has also become more difficult to clinch cost-saving deals both GM and Chrysler need to reach with creditors and the UAW.

GM and Chrysler have won pending contract concessions from the union intended to bring factory labor costs in line with those of Japanese automakers, led by Toyota Motor Corp., that have operations in the United States.

But GM and Chrysler have failed to meet other targets set for them by the government in December. In particular, talks intended to cut debt at both companies have failed to produce results over the past six weeks.

GM has been negotiating with its bondholders to reduce by two-thirds the roughly $27 billion in debt that they hold. GM and advisers to its bondholders have exchanged proposals on a debt restructuring, but have made little progress toward a deal.

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