The G.M. Bailout: Giving Credit Where Credit Is Due

Rick Wagoner and Steven Rattner. Which one really saved G.M.?

The New Yorker's Malcolm Gladwell has an excellent review of Overhaul, the chronicle of the G.M. and Chrysler bailouts by former Auto Czar Steven Rattner. But while Rattner views the bailout as a personal triumph, Gladwell finds an unlikely hero in G.M.'s resurgence — the oft-maligned Rick Wagoner. Gladwell writes:

Wagoner was not a perfect manager, by any means. Unlike Alan Mulally, the C.E.O. at Ford, he failed to build up cash reserves in anticipation of the economic downturn, which might have kept his company out of bankruptcy. He can be faulted for riding the S.U.V. wave too long, and for being too slow to develop a credible small-car alternative. But, especially given the mess that Wagoner inherited when he took over, in 2000—and the inherent difficulty of running a company that had to pay pension and medical benefits to half a million retirees—he accomplished a tremendous amount during his eight-year tenure. He cut the workforce from three hundred and ninety thousand to two hundred and seventeen thousand. He built a hugely profitable business in China almost from scratch: a G.M. joint venture is the leading automaker in what is now the world’s largest automobile market. In 1995, it took forty-six man-hours to build the typical G.M. car, versus twenty-nine hours for the typical Toyota. Under Wagoner’s watch, the productivity gap closed almost entirely.

A Good Question

Talking Points Memo asks: "Why is Rick Wagoner getting the boot while the management of the big banks remains in place?"

Wagoner Finished at GM

The New York Times reports:

"The chairman and chief executive of General Motors, Rick Wagoner, is resigning, just hours before President Obama was expected to unveil his rescue plans for G.M. and the ailing American auto industry, a person close to the decision said Sunday.

"Mr. Wagoner was asked to step down, and agreed to do so, as part of G.M.’s restructuring agreement with the Obama administration, according to an administration official who spoke on condition of anonymity because a formal announcement has not been made yet."

Albom Takes Off the Gloves

I'm really shocked. Twice in one month. (Hell, twice in one decade would be a record.) It's another Mitch Albom column I like:

"Kill the car, kill the country. Sen. Richard Shelby, Sen. Bob Corker, your names will not be forgotten. It’s amazing how you pretend to speak for America when you are only watching out for your political party, which would love to cripple unions, and your states, which house foreign auto plants.

"Corker, you’ve got Nissan there and Volkswagen coming. Shelby, you’ve got Hyundai, Honda, Mercedes-Benz and Toyota. Oh, don’t kid yourself. They didn’t come because you earned their business, a subject on which you enjoy lecturing the Detroit Big Three. No, they came because you threw billions in state tax breaks to lure them.

"And now — this is rich — you want those foreign companies, which you lured, and which get help from their governments, to dictate to American workers how much they should be paid? Tell you what. You’re so fond of the foreign model, why don’t you do what Japanese ministers do when they screw up the country’s finances?

"They cut their salaries.

"Or they resign in shame.

"When was the last time a U.S. senator resigned over the failure of his policies?

Yet you want to fire Rick Wagoner?"

Wagoner might need to get out for G.M. to get bailout

G.M.'s gain may be Chief Executive Rick Wagoner's loss.

The Wall Street Journal reports: "On Sunday, Sen. Christopher Dodd (D., Conn.), a supporter of emergency loans for Detroit, suggested Mr. Wagoner should go if the government follows through and provides billions of dollars to help the auto giant restructure and return to profitability."

Jet-Pooling Please

The executives at the Big Three make it so hard to love them...

"The top executives of General Motors, Ford and Chrysler appeared in front of Congress for the second day in a row Tuesday, to make their case for an emergency government loan," CNN.com reports:

"The three CEOs have said they don’t have the cash to operate next year without help and warned that the failure of the industry would have dire consequences for the U.S. economy.

"And yet GM CEO Rick Wagoner, Ford CEO Alan Mulally and Chrysler chief Bob Nardelli arrived for these historic hearings on private jets! That’s right: The men at the helm of an industry so crippled that it has to ask for taxpayer money to survive flew on private jets. And they wonder why the American public is so angry about these bailouts.

"Their choice of transportation dominated Wednesday’s hearing. Representative Gary Ackerman, a Democrat from New York said: '… there is a message here — couldn’t you all have downgraded to first class or jet-pooled to get here? It would have at least sent a message that you do get it.'

"'If you’re gonna streamline your companies, where does it start? And it would seem to me as the chief executive officer of those companies you can’t set the standard of what that future is going to look like, that you are really going to be competitive, that you are going to trim the fat, that you don’t need all the luxuries and bells and whistles … it causes us to wonder.'"

Engines from Flint

This is relatively old news, but still good news:

General Motors chairman and CEO Rick Wagoner has announced that the company will invest US$370 million in the U.S. to build a new manufacturing plant for its global four-cylinder engines in Flint, Michigan. The plant will begin production in 2010, and will be the exclusive manufacturing facility in North America to produce the Chevrolet Volt’s range-extending engine.

“GM, the UAW and the City of Flint have had a long-standing relationship,” Wagoner said. “Based on the capability and the commitment of the men and women who will work here, the tradition and leadership from UAW Local 599, the tremendous automotive heritage that underlies this region, and the strong partnerships we enjoy with local, state and federal governments, we are confident that Flint is exactly the right place to build our all-new powertrain plant.”

A not-so-simple question

After reading about G.M.'s dismal second quarter earnings report, redgirl asks:

"What was CEO Rick Wagoner's salary in 2006? In 2007? What will it be in 2008? Hmmm — I wonder if GM will cancel all of his health insurance when he reaches the age of 65...which is what the company did to my 79-year-old mother and God only knows how many other retirees and their spouses ... Angry? You bet I am."

Such a simple question. What is Rick Wagoner's reward for posting huge losses while slashing jobs, wages and benefits?

Turns out it's not so simple, but let's try and get a handle on it.

Effective March 1, 2006, Wagoner agreed to cut his $2.2 million annual salary in half. That meant his new salary was around $1.1 million a year.

Then, in 2007, G.M. announced Wagoner would “continue” to draw a "reduced" salary. Here’s where it gets a little tricky. The new salary was not based on the $1.1 million he’d earned the previous 12 months. Instead, it was based on what he made before the March 2006 reduction.

That worked out to a 2007 salary of $1.65 million a year. In other words, he got a raise, despite claiming he was drawing a "reduced" salary.

Mark Stein at portfolio.com does an excellent job of showing that Wagoner's pay "cut" didn't necessarily mean less money. He also points out that salary only accounted for 17 percent of Wagoner's total compensation:

“The remaining 83 percent of his $10.1 million annual pay package comes in the form of stock awards, option awards, pension sweeteners, and $769,566 in ‘other’ compensation (life insurance, financial planning, personal travel on the corporate jet, bodyguards, and dividends on restricted stock).

Then, in March of this year, G.M. announced that Wagoner “will earn a salary of $2.2 million in 2008, restoring his base pay to the level it was before he took a 2006 pay cut as part of the company's turnaround plan,” according to the Associated Press.

“Wagoner is eligible for up to $3.5 million in incentive payments and a grant of 165,563 shares of GM stock if he meets the internal targets,” according to the AP. “He will also receive 500,000 stock options that will vest over three years and 75,000 restricted stock options that will vest in three to five years.”