My insider view on the auto crisis
This week, the Obama administration gave GM 60 days to establish a plan for viability and Chrysler 30 days to accomplish a merger with Fiat, otherwise, both would be forced into bankruptcy. In addition, Rick Wagoner was forced to resign from his position as CEO of GM, and he was replaced by Fritz Henderson.
Firstly, I think Rick Wagoner was a bit of a scapegoat here. He really didn’t do anything wrong to merit the forced resignation. Most of the damage done to GM happened before his tenure, and he has done some good things to turn it around. However, CEO of a company the size of GM is a rather unique position. Decent really isn’t good enough. Rick accomplished some good things, and had the economy not turned sour, he might have righted the ship over the long-haul. During the last few months of this crisis, he has not really shown a great sense of expedience in fixing the mistakes.
The new CEO, Fritz Henderson, did an employee broadcast a few days ago, and I was greatly impressed by him. He seemed to have a great sense of urgency about him, and he is clearly intelligent and tough. He is certainly more charismatic than Wagoner, though I don’t know how important that is for a CEO. It is obviously too early to judge him, but I would hire him for the job if I had the power to do so. So while Wagoner got a pretty bum deal, I think they did the right move by giving the job to Henderson.
GM was given 60 days to submit a new plan for viability. Really, though, this is a bit of a misnomer. GM has a lot of constituencies who negatively affect their balance sheet. These are the bondholders who fear they will have to take pennies on the dollar for the debt they hold; the union who fears their contract will be broken; and the dealers who fear the national network will be greatly reduced. The 60 days is not to create a plan; it is to get concessions from all of these groups. The threat of bankruptcy in 60 days is a means of holding the proverbial feet to the fire. Or else it is a means of forcing those concessions as GM obviously cannot survive without them.
GM has no negotiating power with these constituencies, and I think the 60 day deadline will provide that power. If some group is unwilling to give concessions, they will be forced to risk bankruptcy which seems to be an enigma. Without the deadline, they would have no incentive to give in, and this mess would drag on endlessly on the taxpayer’s dollar. The deadline hurts, but it has to be done.
I also think the deal they are giving Chrysler is appropriate too. Chrysler was gutted of its ability to make cars when it merged with Daimler, and now that they stand alone again, they are doomed. Sadly, the merger is their only real hope.

