Reaction And Analysis: Obama's Auto Plan

With 31 years at GM, Wagoner represents the "old guard" in Detroit, much more so than his counterparts at Chrysler and Ford. Now Obama has a very visible symbol of his determination to force change on the industry as a condition for supporting it. He got rid of the biggest guy at the biggest company.

[John Casesa, an industry analyst] said, Mr. Wagoner's finance background might have been a poor fit: "The most successful auto companies are run by people who came out of the revenue-generating functions — manufacturing, design, marketing — making cars and selling cars." Mr. Wagoner, the analyst said, "skipped the whole apprenticeship that most auto C.E.O.'s experience."

Mr. Wagoner's tenure came amid extraordinary challenges that weren't entirely of his own making--including costly retiree benefits and union contracts that predate him, and the recent deep recession. Yet GM by most measures performed worse than other auto companies. Among the key decisions that hurt the company: a huge bet on trucks and sport-utility vehicles that piled up on dealers' lots unsold as high gasoline prices drove Americans to look for more fuel economy offered by rival companies.

White House sources said Chrysler isn't viable as a stand-alone company, and without Fiat or more tax dollars, might go into some kind of "structured" bankruptcy. But auto industry analysts say a bankrupt car company isn't much of a company at all — simply because shoppers don't want to buy cars from a bankrupt company.

If GM had been left to fend for itself, and it eventually declared bankruptcy…it would have restructured and fired Rick Wagoner in the process. Because it wasn't left alone, and because the government decided to support it until it got back on its feet, the Obama administration is restructuring it themselves.

[Rick Wagoner's] critics say that under his watch, GM focused too much on trucks and sport-utility vehicles even as foreign rivals introduced smaller, more fuel-efficient vehicles…

His defenders, however, have noted that during Wagoner's reign GM has led the industry in renegotiating key contracts with the United Auto Workers. Those revised contracts allow automakers to pay new hires much lower wages and permit the company to shift billions in retiree health-care costs to a union-run trust.

Chrysler's sales have plummeted this year. Even if a Fiat alliance does result in some small, fuel-efficient European vehicles getting to the American market it will be a couple of years before the tie-up is running properly, developing the vehicles that Chrysler cannot afford to do alone. In the meantime America's government could be on the hook for plenty more cash if it allows Chrysler to survive.

The survival of General Motors and Chrysler--Ford Motor is so far getting by on its own--has moved from the practical to the political…

General Motors will get the money to survive for sure. There is no way any administration would risk losing an election for a few billion dollars. Of course, there's not a lot left of GM--we probably will be down to Chevy and Cadillac and a few Buicks and a Pontiac--but there will be enough government money to keep those going through the next presidential election. After that? Another story.

But shouldn't one feel sorry about the car companies? No, given their current circumstances, because these government programs generate a false sense of altruism and doing "good." All the grateful union members get the money, but the money has to come from somewhere, from people who no longer have the money. Unfortunately, the spotlight seems to miss this other darker side of government's wonderful gifts.

Wagoner's sudden fall from power was the most striking development of the new plan, but one that made political sense. In the wake of the populist cries of outrage over AIG bonuses and billions in aid to Wall Street, it's easier for the Administration to justify putting more money into the floundering carmakers if GM's longtime top executive doesn't get to stick around.