March 30th, 2009 - 3 Comments

In exchange for further assistance from taxpayer-funded federal loans, the White House is forcing Rick Wagoner to resign from his post as chairman and CEO of General Motors. The Wall Street Journal calls the move “one of the most dramatic government interventions in private industry since the economic crisis began,” and Smeal’s Terrence Guay agrees. But, Guay says, “It is perfectly acceptable.”

More from Guay:

Financiers—be they commercial banks, the IMF, or private equity groups—always attach strings, or more accurately “conditions,” to their loans. It should be no different for the U.S. government. If taxpayer money is being loaned to a private company, the government should have every right to attach conditions to it, including changing GM’s management team. 

Wagoner’s almost nine-year tenure as CEO has done little to improve the fortunes of the company, and has arguably made them worse. Unfortunately, this transition comes too late in the game to have much of an effect in creating a successful restructuring plan for the company. 

The Obama administration has learned a lesson from the government initiatives over the past year to support the ailing financial sector. Public opinion simply will not support bailouts without conditions.  In effect, while banks received incentives or “carrots” to change their ways, the government is trying the “stick” approach with the auto industry. What the government may find out is that, regardless of the tactic, it is very difficult to discipline companies as the U.S. political economy is currently structured. 

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3 Responses to “GM CEO O-U-T”

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