Can Washington Really Fix Detroit?
The big developments of Washington's edicts to General Motors and Chrysler hit Wall Street very hard on Monday, as investors like the idea of bailouts with no strings attached far better than they like the idea of bailouts with strings attached. So far today, Wall Street seems to be rebounding from the duo bad news from GM and Chrysler.
In the case of General Motors, Washington tired of the ongoing leadership failures of CEO, Rick Wagoner who has been presiding over troubles for GM that started way before the current economic crisis. One of Wagoner's first acts as CEO of GM was to raise his own, since then he has presided over the decline of what was once the world's largest automobile manufacturer. Now it is in second place to Toyota, and is on the brink of bankruptcy.
Wagoner spent massive amounts of money on new model designs that sold poorly as well as invested $1 billion in developing a hydrogen fuel cell powered car, which so far has extreme problems in development. Even rival Toyota doubted the viability of a fuel cell powered car based on current technology, and is betting on extreme hybrid automobiles as the best bet for new technology vehicles for the short term future.
Under Wagoner's helm, GM stock lost 90% of it's value per share and in addition GM also lost $82 billion dollars. While Wagoner gained some early praise as a cost cutter in some areas, he seemed to lack vision for the company in other areas. And some problems such as the high cost of pensions for retired union workers were a major cost problem for GM, adding as much as a $1,600 cost to each car. But perhaps the biggest shortcoming of Wagoner was his focus on fuel thirsty SUVs, light trucks and other lower mileage vehicles while Toyota and Honda moved ahead with hybrids and extreme hybrid testing of prototypes.
Wagoner had agreed to work for just $1 this year, which was substantially less than his former $14,415,900 total salary as well as compensation. All of this bad history for Wagoner as well as his lack of a real plan to turn around GM forced the White House to ask him to resign for the good of GM and to allow new leadership a last ditch attempt to turn around this ailing giant corporation around.
At Chrysler, things are also very bleak. German automaker Daimler dumped this company a few years ago and a group of private investors have attempted to manage the company through this tough recession environment. However, despite a number of very attractive model cars and trucks as well as the strong selling Jeep line, Chrysler in such bad financial condition that the White House is pushing the company to merge with Italian automaker Fiat within the next 30 days.
There are many problems with this. Fiat has historically been a marketing failure in the United States, where it was never a big selling brand name here ever. Further, a terrible reputation as a quality challenged brand makes many U.S. buyers very wary of buying Fiat products. Fiat often had to seek out partnerships with some of the worst of brands such as in the Soviet Union designing some of their old passenger cars. The dreaded Yugo from Yugoslavia was a Fiat ancestored product as well. However, Italy's modern Fiat cars do have many fresh and attractive models that could conceivably have some American market appeal traction if Chrysler could market them under their own names as Chrysler or Dodge products and American buyers could be distracted from the old reputation and history of Fiat.
It is understandable how the White House would like to see some real tangible results for the billions of dollars of ongoing aid that the government is pouring into GM and Chrysler. Compared To Ford, which has been far better managed and not seeking aid from the government, both GM and Chrysler are two very sick corporations struggling for their very lives.
Washington would certainly like to save both GM and Chrysler. But both GM and Chrysler have both dug themselves a very deep hole to climb out of. Now, even the best of intentions from Washington is almost a case of too little, too late. Both GM and Chrysler needed to be managed as well as Ford was very early on. Now things are almost a lost cause.