On the eve of a much-anticipated announcement regarding further bailouts for GM and Chrysler, GM CEO Rick Wagoner is stepping down as head of the company. What has raised my eyebrows is that the resignation apparently comes at the request of the Obama administration. Mr. Wagoner’s marks against him are evidently the length of his tenure at GM, and the slowness of his response to economic tough times by shrinking the company and taking on the UAW. David Cole of the Center for Automotive Research said Wagoner was essentially taking one for the team so that his company could receive more taxpayer money; he went on to note that he wasn’t surprised by the move, but disappointed as he still considered Wagoner a capable leader.
There is recent precedent for the action. Former Secretary Hank Paulson replaced the heads of AIG, Fannie Mae, and Freddie Mac when they took government aid in September of 2008. And way back in 1984 (what a coincidence there), federal authorities ousted the head of Continental Illinois National Bank and Trust Co. when they took 80% ownership.
Although the precedent exists, however, I am still left uncomfortable at the thought of government dictating to private entities who should sit in the leadership chairs. Yes, I understand that a special situation is created when public tax dollars prop up their companies, but that sort of gets at the root of the problem – public tax dollars shouldn’t be used to prop up private companies. As painful as it might be, companies that make bad decisions should be allowed to fail, with smaller and stronger companies picking up the slack. In any case, what I’ve read so far seems to indicate that although Wagoner did commit some management missteps, the real reason for the request was to provide moral authority for the administration to take whatever action it deemed necessary or appropriate. In other words, the “change” is more for political expediency and not an example for forward-looking thinking. Boy, that sounds awfully familiar …
By definition, this move brings us ever closer to socialism. No matter how great the intentions, the essence remains of government providing ownership and direction to private sector corporations. The announcement tomorrow will probably have a short-term and much-lauded positive effect on automakers’ stocks, but it’s my own belief that increased government entanglement will ultimately hogtie the companies and cause them to suffer. Unfortunately, solving the crises of the automakers and the banks is going to take more than shovelling more money into the furnace and rearranging the Titanic’s deck chairs.