For example, can you imagine a company surprising investors or other stakeholders with the idea that they don’t have enough cash to last the year?
It appears to me that GM management and indeed union leadership, have labored under the belief that there was just no way for the company to fail, and so they made decisions based on that amazingly foolish assumption. The situation is discussed in today’s New York Times, where they quote and discuss Rick Wagoner, Chairman and CEO of GM.
Stoic and unemotional in public, Mr. Wagoner has been rigidly protective of G.M.’s strategy to expand internationally while downsizing its North American operations.
“This is an issue of the whole auto industry, if that becomes under severe pressure, the impact on the whole U.S. economy will be devastating,” Mr. Wagoner said in an appearance Sunday on a television news program in Detroit.
But the killer is Mr. Wagoner being quoted as saying:
Our basis business is in as good a shape as it’s been for 30 or 40 years.
Truly astonishing stuff. A company that has lived for the last six or seven years on the idea of ever larger and more fuel inefficient cars, a company with labor costs so high that before they start making the car they have to add around $2,000 to fund the pensions of retired workers, a company whose Vice Chairman called the Toyota Prius a “publicity stunt”, a company losing $2,000,000,000 per month has a “basis business” that is in as good a shape as its been since the 70’s?
Heaven help us.
What I would like to see is the destruction of GM, but I think it needs to be done without bankruptcy. I’d like to see the component parts sold off. Essentially, I’d like to see a chapter 7 style liquidation without a chapter 7 liquidation. I don’t think that GM can be reorganized under a chapter 11 style revamp. The people running the ship are not sufficiently tapped into reality. And I don’t think that is just senior management. I think it permeates the company and the union. Liquidating the company is the only way of breaking the back of the wacky union clearing the deck of calcified management and starting to rebuild what we can.
Unfortunately, the trauma of a real chapter 7 would, I think be devastating to the psyche of the country at this time, and would have far too many unintended consequences. But on the other hand, GM certainly cannot continue as it is. It is walking dead.
None of this can happen before a new administration comes in and I certainly don’t want to see GM die before a proper plan can be put together, so something, short term must be done. But the long-term plan must be the liquidation of GM into the hands of other smarter automakers.
3 comments:
Well I think the word "liquidation" is not quite right, as it implies dissolving the business, not transferring ownership. But I agree, the officers as well as the board must go, one way or another. I think you're right that people in charge are totally incompetent to run their own company.
I suggest the following, even though it's not very plausible. Management (i.e. officers + board together) accept magic bailout funds under the the following conditions:
* Some respected individual with big-time CEO experience currently unemployed by the industry is appointed to administer the corporation pro-tem, with a fixed-term contract, say 2 years. His main job is to hire new officers, who will have reasonably limited salary and compensation terms. Say total compensation < $1M, and write that into the charter.
* CEO immediately resigns. Officers agree to resign within 6 months, accepting no further compensation of any kind. Temporary replacements are non-officer VPs and GMs. Senior non-officer management to receive no bonuses, option programs or other compensation until further notice.
* All common stock held in parcels over 1% is effectively eliminated through a forced sale at some insignificant price. Screw the major ownership investors, unless it turns out (I have no idea) some major pension fund or allied government is a big owner, then we have to be kind to them in particular, we'll compensate them in a secondary action afterward. We can't have the current board remain in voting control, as they have proven their utter incompetence, but we don't want to dissolve all common stock, as that will harm innocent if stupid smaller investors and funds. We sigh and allow preferred stock to remain in existence unchanged, so as not to damage the imbecile pension fund investors who presumably (is that right?) form a big percentage of the investors there.
* Over the next year or so, as the company burns through the bailout cash, a new ownership plan is conceived that involves substantial employee ownership. Let the greedy unions deal with the consequences of an inflated work force with benefits that exceed those of competitors. For their own sake, they will be forced to lay themselves off to reasonable staffing levels.
This is admittedly an entirely impracticable plan, as it's been conceived by someone with no large-scale executive experience. But something radical along these lines needs to be done, or a bailout will just have no effect whatsoever.
Where's Lee Iacocca?
I would love to hear his thoughts on the matter.
As you said:
Heaven help us.
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