President Barack Obama forces CEO Rick Wagoner to resign for $20,000 000 and promises to guarantee automobile warranties! This is the first time ever that the U.S. government has fired a CEO of a large corporation. Wagoner out, bank CEOs Safe! Huh?!
President has “No Interest or Intentions of Running GM” … Oops, too late!
In a news conference following the resignation of Rick Wagoner, the President said that ”the United States government has no interest or intentions of running GM”, however … that is exactly what he is doing. It is the job of the Board of Directors to hire and fire the CEO. Barack Obama, whether he thinks so or not, just took over the responsibility of the Board of Directors. There is no decision more important to a corporation. He claims he has a new “vision” for GM in the future. What makes his “vision” a valid business plan?
U.S. Goverment to Guarantee Automobile Warranties?
He went on to say that the US Government would guarantee automobile warranties. Warranties are a business within themselves. They are sold … not given away. The price of the protective warranty is built into the price of the vehicle when it is sold. The money is made up front. Warranty reserves are set up to pay for the estimated repairs based on failure experience rates or “Service Call Rates”. This is basic to all products that provide warranties. There are tons of businesses out there that would be happy to take over the warranties and service of every car sold … as long as they get paid! Now it seems the President is willing to let the US taxpayer pay for them after GM has already taken the money! This shows the total lack of understanding of basic business by the White House.
Which is Worse?
Which is worse, letting GM and Chrysler be reorganized through bankruptcy courts with a chance of surviving stronger or letting them completely fail by letting the White House take over and call the shots? What gives the White House the experience or knowledge to run one of the largest companies in the world? Is it the great success with the takeover of AIG? Could it be the great success the U.S. Government has shown with Amtrak and the US Postal Department? So, far as I can recall, no one I know of currently in the White House has ever so much as ran a Dairy Queen.
Please don’t misunderstand what I am saying. I don’t know whether Rick Wagoner should resign or not. He probably should! (For twenty million bucks I sure would!) However, the guy who just asked him to do so has zero business experience and an obvious lack of business knowledge. The White House definitely has no business making that type of decision for any Corporation.
The White House continuing to believe they know how to run the Auto Industry is ludicrous. Whether it be arrogance, overconfidence, or just plain lack of experience and knowledge doesn’t matter. Continuing to burn huge amounts of taxpayer money to avoid restructuring in bankruptcy is not the answer. Government running large corporations is not the answer.
A Real Boomer’s Answer
Cut off the money! They should never have got any in the first place. Let the Corporations figure out their own path to success or failure. They will figure it out. They have a much better chance of succeeding without government help! There are times when doing nothing is the right answer! Papa B.
Also see:
Auto Bailout or Bust? Should Boomers Believe It?