Last fall, I suggested that General Motors Corp. (NYSE: GM) ought to follow a six point restructuring plan. One of those steps was to can GM's CEO Rick Wagoner. Under his tenure, which began in 2000, GM's stock has lost 95% of its value and GM has posted $30 billion in 2008 losses while presiding over a North American market share slide from 33% to 19%. What amazes me is that GM's board did not step in years ago. So Monday, President Obama will officially ask Wagoner to step aside.
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FeedObama to GM CEO Wagoner: You're Fired!
Dodd wants GM's CEO out and GM/Chrysler merger
Senator Chris Dodd (D-CT) wants General Motors Corp. (NYSE: GM) CEO out and thinks a merger between Chrysler and GM makes sense. I am happy to hear him say that because I suggested those ideas as part of my six point restructuring plan for the auto industry. The difference is that when Dodd says this, he actually has some power to make it happen.
This morning on Face the Nation, Dodd said, "You've got to consider new leadership. [Wagoner] has to move on." Moreover, when asked if a change in leadership should be a condition of a bailout, Dodd said, "I think it is going to have to be part of it." Dodd also said, "Chrysler, is, I think, basically gone, probably ought to be merged."
This sounds like progress to me. If only Congress could push the auto industry to follow the other four parts of the restructuring plan, that would be great. However, my plan left out an important point -- even if the industry cuts unprofitable products and the related dealerships and reduces pay and benefits it will still need to agree on how much of a haircut the bondholders will need to take in a restructuring.
Nevertheless, Dodd's comments on Face the Nation represent good progress.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
Do bailouts pay?
Our government has been doing its share of bailouts in the last year. It put $29 billion of taxpayer money at risk to finance the takeover of Bear Stearns. It stands ready to use $800 billion to bailout Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). And now General Motors (NYSE: GM) wants $50 billion in government guarantees to finance fuel efficient cars. I have been looking into the bailout issue and whether it is beneficial or a misuse of funds - and there is a lot of debate about this issue. These bailouts may make political sense but are they in the long-term economic interests of the country?
A colleague of mine who was a Budget and Cost Analyst for a top government agency has been thinking about the political aspect of bailouts and shared his thoughts with me. As he wrote, "It is a sure thing that either party could get votes from a bailout, but they might loose some as well. Where a party could really improve its position would be to support a bailout, but lose."
He suggests that this outcome would pay off in the short-run but could damage long-term economic outcomes. As he suggested, If the party supported a bailout but lost, "it could claim that it was trying to support the victims, but had been frustrated by the other party. And this could be used to promote the party for many years in efforts to get votes. While maneuvers of this sort may get short run votes, over the long term they might be hurtful of sound economic growth and performance."
Newspaper wrap-up: GM plants to start production after strike settled
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MAJOR PAPERS:- General Motors Corporation (NYSE: GM) plants that were idled during the American Axle & Manufacturing Holdings Inc (NYSE: AXL) strike are set to resume production mow that the strike has been settled, the Wall Street Journal reported.
- The Telegraph reported that Halliburton Company (NYSE: HAL) is expected to determine this week whether it will make a GBP1.8B counter bid for its British competitor, Expro International Group (OTC: EXPRF).
- The Telegraph also reported that U.K.-based Imperial Tobacco Group Plc (NYSE: ITY) could conduct a GBP5B rights issue this week. The company has suggested that it needs the funds in order to retain its investment-grade credit rating following its acquisition of Altadis.
- According to Bloomberg, regulatory filings show that banks such as Citigroup Incorporated (NYSE: C) are failing to acknowledge at $35B of additional writedowns in their income statements.
General Motors looking at $200 million engine plant in Brazil
General Motors Corporation (NYSE: GM) will be building a new vehicle engine and parts plant in Brazil at a cost of $200 million, the automaker said this week. The new plant will bring about 500 new employees to the automaker at a time when it's winding down the closure of quite a few vehicle assembly plants all over the U.S.Six quarters from now, the new Brazilian plant shout be producing engines in the new facility, which is expected to make about 50,000 engines per year. In a unique twist, GM also indicated that engines from this new plant will be tested without using gasoline, eliminating contaminants inside the plant (as in emissions particulates).
Most likely, engines produced in this plant (which GM has been mum about) will be used in vehicles to feed the fast-growing Brazilian market and perhaps other South American markets as well. GM has seen a rapid increase in its Latin America sales as of late, with a 19.4% increase to 1,235,913 vehicles last year to countries in the region.
Suzuki Motor vows to hold Indian market share forever
With both Toyota Motor (NYSE: TM) and General Motors (NYSE: GM) saying that India is a prime market for future sales, one of the incumbent automakers is saying not so fast. Suzuki Motor Co. of Japan said this week that it firmly intends to keep 50% of the Indian consumer vehicle market "for eternity." Those are pretty strong words, yes?In that rather long-in-the-tooth announcement, the head of the Japanese automaker said that Suzuki would bolster dealer numbers in that country along with enhancing its auto lineup soon to compete with the likes of new competitors to the region. Suzuki CEO Osamu Suzuki said that, "We can't let newcomers break our 50 percent share that easily. We're going to do everything we can to keep that level for eternity." Suzuki is Japan's largest producer of compact cars, and currently has a little above 50% of the Indian automotive market share.
Suzuki may be able to defend its title also, as it sold more compact cars in India during the first half of 2007 than in Japan -- which is considered a dazzling success. Suzuki, though, will have larger global automotive forces to reckon with in the next few years as bigger auto heavyweights move into the area trying to capitalize on growth in the consumer Indian market.
CEO Suzuki said he was "grateful" for the fierce competition, although he's probably sweating in his boots, which -- at his age of 77 -- could just be an intimidation tactic to other automotive CEOs who dare try to take his market share away.
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