Poor Rick Wagoner. The long-time General Motors CEO finally got the boot this week. Some would say he deserved it (including us). But he could have hung on, if not for one fatal mistake…
“What’s good for General Motors is good for the country.” We’ve all heard that one, right?
It’s actually a misquote… one of those legendary quips that gets around because the modified version sounds better than the real thing.
The actual source was Charles Erwin Wilson, head of GM in the early 1950s, during a question and answer session with the Senate Armed Services Committee.
The Senate wanted to know if Wilson would have any conflicts of interest upon taking a job as Eisenhower’s secretary of defense. Would he, Charles Erwin Wilson, in his capacity as defense secretary, be willing to make a decision that could harm GM for the good of the country if need be?
Wilson confirmed his willingness to put country first… and then added he could hardly imagine such a scenario coming to pass.
Thus came the famous (and oft misquoted) line: “For years I thought what was good for our country was good for General Motors, and vice versa. The difference did not exist.”
Kicked to the Curb
Wilson may have been correct at one time in his opinion that “the difference did not exist,” re, America’s interest versus GM’s.
But a difference sure exists now! It has become apparent, at least by Washington’s measure of things, that in order for America to rise up, GM has to go down. After months and months of socialism-lite and big business mollycoddling, the iron hand of discipline has finally made a showing.
I mean really, you have to love the irony of this juxtaposition:
– On Friday, March 27, President Obama met with the nation’s top bankers – including Ken “Pig in a Poke” Lewis, Vikram “Bandit” Pandit, and 13 others – for a carefully orchestrated “discussion.” (All sides described the meeting as “cordial” according to the WSJ.)
– On Sunday, March 29 – less than 72 hours from the tough-love banker-fest – Team Obama delivered the following loud-and-clear message to Rick Wagoner, the soon-to-be-ex General Motors CEO: “Pack your bags, buddy boy, and don’t let the door hit your a** on the way out!“
How’s that for a change in style and demeanor? You can’t make this stuff up, folks… Jekyll and Hyde have nothing on this White House.
Earlier this week, a Taipan Daily reader and VIP Inner Circle member suggested I should write Grisham-style novels about all the nutty stuff that happens in high finance. But you know what? Truth is more fun than fiction… if I tried to put a twist like that in a fictional novel plot, no one would believe it. They’d write it off as too crazy.
Now don’t get me wrong… I agree that Rick Wagoner (the now ex-CEO of GM) should have been canned. He should have been canned a long, long time ago. The guy handled his exit with class and grace, I’ll give him that. But really now – when your company loses a mind-boggling $90 billion, the share price falls from $70 to $2, and you’re still talking up incremental change in your media memos, it’s long past time for the ax.
No, the amazing thing in all this is not Wagoner’s long overdue White House-engineered demise. It’s the insane difference in treatment between Wall Street and Detroit, as displayed in back-to-back instances over a single weekend.
Let us gladly grant that automaker heads had to roll. Many months ago in these very pages, we called loudly for the resignation of Wagoner and his fellow dead-enders. I mean for Pete’s sake, both Toyota and Honda felt compelled to tap new leadership as a result of the crisis… and those two companies are actually healthy and profitable!
Wagoner’s Big Mistake
The funny (or not so funny) part of the deal is where Rick Wagoner went wrong. Not from a “running GM” perspective, but from a “saving Rick Wagoner’s career” perspective.
As the long-time head of a doomed behemoth, Wagoner had proved himself to be a championship-caliber contestant in the game of “CEO survivor” – where the objective is to keep from getting voted off gravy-train island for as long as possible.
Wagoner’s ultimate mistake, though, was to fail too small. He should have failed bigger.
Here’s what I mean…
For quite a long time, it seemed that General Motors had the lock on “fail.” In terms of a hopelessly doomed, dire outcome muscle-flexing contest, who could compete with the mighty GM?
Just look at the sheer scope of it all: The dying industry (coupled with a dying city)… the deteriorating quality… the vibrant competitors… the gigantic-epic-humongous pension obligations… the desperate suppliers lined up like domino chains… GM seemed to be the undisputed king of fail, with tens of billions in mounting losses to make the case.
But that was all kid stuff once Wall Street’s “weapons of mass destruction” (Warren Buffett’s pet name for derivatives) hit the scene.
In perhaps the most stunning instance of “top this” ever recorded in American financial history (or ANY financial history for that matter), the megabankers came along and made Rick Wagoner a mere piker. In comparison to Citigroup, Bank of America and the like, the GM failboat started looking like a dinghy moored next to an ocean liner.
And so the megabankers – the new undisputed champions of fail – wrangle themselves a high-profile meet-up inside the White House (as opposed to some other less “cordial” place), complete with smiling faces and post-chat photo op… while Wagoner gets tossed like yesterday’s trash.
Rick my man, you should have done it bigger… if only you’d had the gumption to, say, juice GM’s pension fund with 10 cubic kilotons of derivative toxic waste. You know, a couple truckloads of inverse-floater triple-leverage mega-mortgage reverse-collateralized AIG swaps. Something like that.
Ah well. Better luck next time… and let this be a lesson to all you other bailout-hungry fail-prone CEOs: This is America! Dream Big!!
A Tear for Detroit
One of the saddest aspects of all this – apart from the plight of the many auto workers and related auto industry workers who don’t deserve this – is what’s happening to Detroit.
There is a personal tinge to this whole saga: Your humble editor was born in Detroit. I still have relatives in Detroit and Ann Arbor. On top of that, a good chunk of family history is rooted in Grosse Pointe.
My connection to Motor City has grown tenuous over the years… having spent the last 11 years out West, I am now a Nevadan more than anything.
But I did get the chance to visit Detroit this past Thanksgiving. That visit included the opportunity to drive around and see the semi-apocalyptic conditions firsthand.
Believe it or not, there are some real insights to draw from Detroit’s automotive plight, and maybe a trading idea or two to boot (no pun intended). We’ll touch on those in a future Taipan Daily.