Rescue the Auto Companies–From the Government. By Pete the Banker

December 8, 2009


Fritz Henderson, CEO of General Motors was fired recently by the Government installed Board selected prior to GM’s emerging in record time from Bankruptcy in July after wiping out GM’s former shareholders and creditors with the exception of the UAW. 
Henderson was fired despite the fact that on November 17, GM announced a loss of $1.2 Billion down from $4.2 Billion in the third quarter a year earlier.  This loss included restructuring charges and actual operating loss was $700 million.  Henderson had in fact suggested that GM would repay at least $1 Billion of the $6.7 Billion Federal Loan by the end of this year. 
Given the improved results, why sack the CEO only 6 months after his appointment, especially since Obama’s chief emissary, Steve “temper tantrum” Rattner recently suggested that GM was ahead of long range plan financially?  Perhaps the answer was disclosed by the Wall Street Journal.  In early November Henderson was considering accelerating GM’s plans to float a public equity offering in securities markets as early as 2010 to raise capital to pay off the Federal Government. 
The WSJ last month on Nov 11 stated of Board Chairman Whitacre who fired Henderson,
“The government-appointed Chairman of General Motors Co. gave fresh signs that he is tightening his control over the auto maker, saying Tuesday the board isn’t comfortable with management’s forecasts for 2010 and indicating the chief executive’s timetable for an initial stock offering could be too optimistic.
In an interview with The Wall Street Journal, Chairman Edward E. Whitacre Jr. said the timing of GM’s return to the public stock markets is uncertain…” 
According to Senior Securities Analyst Michelle Krebs about the firing of Henderson on December 1 (here):
“Ed Whitacre was the government’s choice to lead the company and the Automotive Task Force always appeared lukewarm about the idea of Fritz staying in the top job,” she said. 
Another significant management change announced was to expand the authority of Bob Lutz, Vice Chairman, to both Advisor on Design and Global Product Development (here). Lutz is getting much of the credit for development of the Chevy Volt, an extended-range gas/electric hybrid which GM will market by early 2011.
So why would the Board fire an Executive who was moving the GM toward improved operating results ahead of schedule and toward repaying the Government in 2010.  Does the Federal Government and their hand picked Chair Ed Whitacre fear GM’s rapid success despite it’s lack of a  new totally green product line?  Why was Whitacre who admitted to Bloomberg (here) in June “I don’t know anything about cars,” promoted?  Was this simply done to sooth the egos of Rattner and his boss Obama who want GM to produce compact “green” cars regardless of their popularity or profitability?.  Or is there something more nefarious at work, their reluctance to ever relinquish control of the automotive sector?

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