30 March 2009

Wagoner Agrees To Step Aside

Original Post at Detroit Free Press

President Barack Obama's rescue plan for Detroit automakers will be unveiled Monday, but one condition became clear today: the resignation of General Motors Corp. Chairman and Chief Executive Rick Wagoner.

As a condition for additional government aid to GM, the Obama administration asked Wagoner to step aside, which Wagoner agreed to do today, people familiar with the plan said. Wagoner’s move, effective immediately, ends a 31-year career with GM.

Not since President Franklin Roosevelt considered taking control of Ford Motor Co. in 1943 from a failing Henry Ford has the federal government pushed for such sway in the management of Detroit’s automakers.

The tack suggests a hard-nosed approach from the Obama administration toward the automakers, bondholders and the UAW, all of whom have yet to reach agreements on key concessions, despite months of talks.

Obama will unveil the new rescue plan for GM and Chrysler in a White House ceremony this morning.

It was not clear who would replace Wagoner; chief operating officer Fritz Henderson would appear to be the most likely candidate. GM declined to comment.

A tumultuous 31-year career ends

“It’s time to stop whining and play the game.”

That was Wagoner six years ago, laying out a vision of a booming market for GM’s vehicles around the world and defending an aggressive campaign of rebates that spurred GM’s sales.

But his resignation on Sunday put an abrupt close to his 31-year career with the automaker.

Even though Wagoner had overseen a company that’s lost $82 billion over the past four years, he had faced few serious challenges to his leadership, the exception being a drive in 2006 by billionaire investor Kirk Kerkorian for an alliance with Renault-Nissan than Wagoner blunted.

“I’m disappointed but not surprised,” said David Cole, chairman of the Center for Automotive Research. “One of the things we recognize is that any kind of aid for industry, whether it is the financial or the auto industry, is quite politically unpopular. If you are in the government’s position, you need to be able to show the heads that have come from this.”

News of Wagoner’s departure caught many in Detroit off guard, especially after his determination to stay in office despite what seemed like continuous pressure from some corners of Wall Street and Washington to step down.

Asked about the development late Sunday, one top GM executive confided: “You know as much as we do.”

The change comes as GM is undergoing sweeping restructuring efforts, which include cutting 47,000 jobs by the end of the year, scaling back its dealer network by about 25% by 2012 and eliminating brands and models.

“I’m not necessarily sure it’s the best idea” for Wagoner to leave now, said Aaron Bragman, an industry analyst from IHS Global Insight. “You’re changing captains in the middle of the rapids here.”

It wasn’t clear today who would replace Wagoner, or why the government had asked him to leave. The most obvious candidate to step into his roles would be Chief Operating Officer Fritz Henderson, with Chief Financial Officer Ray Young also possibly moving up.

The news sent new rounds of anxiety through the workforce. GM hourly worker Randy Halazon, 51, of Vassar, near Flint, has spent a combined 31 years at GM and the automaker’s parts spinoff Delphi. He said he is more concerned than ever about the GM’s future, fearing the change in leadership might mean a greater likelihood of bankruptcy.

“I think it would be a bad deal,” Halazon said.

While Wagoner will likely be remembered as the CEO at the helm when GM required at least $13.4 billion in government aid to stay alive, some of successes under his watch include development of the Chevrolet Volt, an electric-drive vehicle slated for the market in late 2010, and a renewed partnership with the UAW that brought about a 2007 labor agreement that significantly changed the company’s cost structure.

Early in his tenure as chief executive, Wagoner outlined a strategy for GM to focus on developing countries where the auto industry still had large potential growth, such as Brazil, Russia and China. By 2005, GM was selling more vehicles overseas than in North America and GM was the No. 1 car company in China, with the Buick brand in China outselling its U.S. base.

But Wagoner could never halt the steady decline of GM’s market share in the United States, fueled by rising foreign competition and GM’s higher costs, which eventually allowed Toyota Motor Co. to surpass GM as the world’s largest automaker last year.

When he took over as chief of GM North America in 1994, the company held 33% of the U.S. market. Last year, GM’s sales fell to 22% of the market.

The declining market share foretold of GM’s bleak future. The company last made money on an annual basis in 2004, and recorded a $38.7 billion loss in 2007.

Wagoner’s friends and associates always described him as a naturally friendly man who could summon the edge needed to run an enterprise the size of GM when necessary. He only rarely showed emotion in public; once cursing a writer for a Los Angeles newspaper who had written that Wagoner did not like the Pontiac Aztek.

The Aztek debacle in 2000 became a touchstone for Wagoner’s tenure, and the off-base vehicles that GM was building earlier in his career. While Wagoner defended the vehicle and the GM process that created it, he also went looking for someone to rework the company’s product line.

The search ended when Wagoner hired former Chrysler executive Bob Lutz out of retirement in 2002. Lutz eventually succeeded in giving design a higher priority, generating models such as the Chevrolet Malibu that were competitive with the top Japanese models.

Several industry observers today said Wagoner would do what he thought was best for the company – including stepping down if needed. Duane Paddock, a New York Chevrolet dealer who is the co-chair of GM’s national dealer council, said he believed Wagoner could have fixed the company.

“But if his decision, for whatever reason, is to move on then I feel he is making the decision because it’s the right decision for the long-term viability for General Motors,” he said.

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