CEI Comment on Obama Firing of GM CEO Wagoner

D.C., March 30, 2009— 

John Berlau

Director, Center for Investors and Entrepreneurs

Competitive Enterprise Institute


“The ouster of General Motors CEO
Rick Wagnoner by the Obama administration isn’t the first time in recent
history that the government has forced out a CEO. That first happened in
September when Bush administration Treasury Secretary Henry Paulson forced out
American International Group CEO Robert Willumstad in favor of Paulson’s friend
Edward Liddy. 

“The lesson from AIG is that replacing a CEO is no panacea.
There is no love lost for the poor management of Rick Wagoner. He is the one
who went to the government, hat in hand – and when the government is paying the
piper, it can call the tune. But replacing him won’t solve GM’s long-term
problems of too many brands and too large a workforce. And it is increasingly
clear that the bailout itself is an impediment to effective restructuring. 

“The prospect of an ever-increasing supply of tax dollars is
leading parties with auto industry contracts – unions, bondholders, dealers and
others – to play a game of chicken. No one wants to renegotiate a contract when
they think the government will come in with more money to cover the losses. And
the Obama administration, as with AIG, does not have the power of a bankruptcy
court to discharge debt. 

“The government should have allowed both companies to go
into bankruptcy from the start. Like multiple businesses such as airlines,
debts could be discharged and the companies could be restructured. To say that
consumers would be discouraged from buying a car from a company in bankruptcy
misses the point. Consumers would be more likely to buy a car from a company
restructured by a bankruptcy court, as they buy tickets from once-bankrupt
airlines, than buying vehicles from zombie companies dependent on the next
government bailout. This delay likely hurts “satellite” companies like auto
parts makers more than a bankruptcy would. 

“In the meantime, the government should lift antitrust
barriers and leave all options on the table for mergers. The merger with
Chrysler and Fiat that the government is encouraging may not be the most
effective. GM and Chrysler had long considered merging, but may have been
blocked because the combined company would be deemed by antitrust regulators to
have too large a share of the ‘light truck’ market, never mind that this market
itself is shrinking. Given the precarious state of the companies, they should
be given a blanket antitrust waiver to make the combinations they deem
best for their viability. 

“The government should also delay the imposition of the
recently announced increase in Corporate Average Fuel Economy standards.
This  mandate would adds costs and reduces choices even in a good
economy – and could be a lethal blow in times such as these. 

“Let’s drop both the auto bailouts and the strangling
mandates. The American auto industry, which has produced such wonderful
innovations for so many decades, is too important to be ‘saved’ by Washington’s central


Sam Kazman

General Counsel

Competitive Enterprise Institute


“By a strange coincidence, this Administration issued higher
fuel economy standards only days before announcing its newest bailout
plans. Those standards impose a huge burden on the industry, of about $50
billion in added research and development costs over the next five
years. Moreover, the low price of gasoline makes those standards even more
stringent. In short, the Administration is strangling the industry with
one hand while dangling bailout funds with the other.” 


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