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GM Chief to Resign at White House's Behest
Obama Pushes General Motors and Chrysler to Slim Down, Make More Concessions

By Peter Whoriskey
Washington Post Staff Writer
Monday, March 30, 2009

The Obama administration has forced the longtime head of General Motors to resign and said yesterday that it would withhold additional federal aid to the auto industry unless the ailing companies undertake changes they so far have been unwilling or unable to make.

The administration effectively rejected as untenable the business plans that GM and Chrysler had submitted to restructure their companies, saying that neither had fulfilled the terms of the federal loans the companies received in December.

The president is expected to announce today that both companies may still win additional federal aid but under stricter terms.

Chrysler, which the administration believes cannot survive as a stand-alone company, must reach an agreement to partner with the Italian automaker, Fiat, in the next 30 days to become eligible for as much as $6 billion in additional federal loans.

GM, which has shed thousands of workers since the downturn began, must devise a leaner business plan that likely will cut the company workforce and product lines even more than officials had contemplated. It has 60 days to come up with a new approach.

Moreover, GM must move forward without its chairman and chief executive G. Richard Wagoner Jr., who met with administration officials on Friday and has agreed to step down.

The White House's insistence that Wagoner step down is an extraordinary intervention of the federal government into the management of a private company. A senior administration official said Wagoner's resignation was required because the company needs a "clean sheet."

"We felt that having a change of leadership would be consistent with the clean-sheet approach," said the official, who spoke on condition of anonymity because of the sensitivity of the matter.

Before the federal government extends more financial aid to the U.S. automakers, the industry must offer a plan that makes it "much more lean, mean and competitive than it currently is," Obama said yesterday on CBS's "Face the Nation."

Wagoner's resignation also reflects the fact that the president and his auto task force have been skeptical of the company's plan to slim down, which was submitted last month in order to meet the terms of the $13.4 billion federal loan it has already received. Chrysler got $4 billion at that time. A "surgical" bankruptcy could be used to force the companies and their stakeholders to make concessions, administration officials said.

Overall, the task force has concluded that saving the nation's automakers will require more from the companies, their workers and their creditors. The new requirements will be tougher than those in the first federal aid package offered by the Bush administration, officials said.

"Even greater sacrifice will be required of all stakeholders," the senior administration official said. "This doesn't make any of us happy, but we are the custodians of taxpayer dollars."

In recognition of the damage that the declining U.S. auto industry is having on many of the nation's communities, Obama will announce tomorrow that he is creating a new initiative to revive them. It will be led by Ed Montgomery, a dean at the University of Maryland and a former deputy labor secretary.

The administration is also seeking to address the fear that the news of the companies' woes will scare away car buyers. Obama plans to announce today that the administration is creating a program to guarantee the warranties of new vehicles issued by participating manufacturers.

Exactly how much more money the government will lend to the automakers is unknown.

The government is willing to pump more working capital into Chrysler over the 30 days during which it is supposed to reach an agreement with Fiat. It will lend another $6 billion to Chrysler if that agreement is reached. Under the terms of the ongoing negotiations between the two companies, Fiat would take a minority stake in Chrysler that is less than 35 percent, but which could grow to as much as 49 percent. The administration is not calling for Chrysler chief executive Robert L. Nardelli to resign, in part because he is negotiating the Fiat deal.

The amount that GM may borrow from the government will depend upon the government's ongoing review of the company, administration officials said.

Wagoner's resignation does not mean that he will leave the company immediately. He will continue to draw his $1 annual salary, because if he leaves the company he is entitled to a multimillion-dollar pension that the government does not want to pay, a source familiar with the matter said.

On an interim basis, Kent Kresa, a board member will serve as GM's chairman; current company president Fritz Henderson will serve as chief executive.

A GM spokesman declined to comment on Wagoner's departure.

Wagoner, 56, began his GM career as a financial analyst after graduating from Harvard Business School in 1977. He worked his way up the management ladder and after stints overseas he was named GM's chief executive in 2000.

His 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. The company eventually pushed development of its plug-in Chevrolet Volt, but that was after gas prices skyrocketed, they say.

Between 2005 and last year, Wagoner oversaw more than $73 billion in losses.

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. Both of those moves put the company in far better financial position for the future.

But then came the economic downturn and a 40 percent plunge in U.S. auto sales, which left the icon of American industry reeling.

"He was restructuring the company and he got caught by the economy," said Jeremy Anwyl, chief executive of Edmunds.com, a consumer-focused automotive Web site.

Anwyl credited Wagoner with reorganizing the company's finances and their product lines.

Anwyl discounted criticism that GM failed to build fuel-efficient cars because so few people wanted to buy them.

"It's kind of perverse to criticize him for building cars that Americans want to buy," he said.

As GM's woes progressed at the end of last year, Wagoner was compelled to seek federal aid. During his first visit to request aid, in November, Wagoner and the chief executives of Ford and Chrysler, were lambasted for flying to Washington in private jets.

For his next trip, Wagoner drove from Michigan in a Chevrolet Malibu hybrid sedan.

Still, some members of Congress remained angry and called for his resignation. As early as December, Obama seemed sympathetic to that position, saying management should be replaced if the "team that's currently in place doesn't understand the urgency of the situation and is not willing to make the tough choices and adapt to these new circumstances."

In February, GM and Chrysler, requested as much as $21.6 billion in additional federal assistance. Both companies submitted business plans to the government that promise to shrink their workforces and product lines in response U.S. auto sales.

Ultimately, however, what led to Wagoner's ouster may be that his proposal to restructure GM did not pass muster with the Obama administration.

"They're not there yet," Obama said yesterday.

Their plan has "got to be one that's realistically designed to weather this storm and to emerge at the other end much more lean, mean, and competitive than it currently is," he said

He may have been alluding to the fact that the companies have yet to win required concessions from their creditors. Under the terms of the original $17.4 billion in federal loans, GM General Motors bondholders and the companies' retiree health plans were supposed to give up their claims to billions in debt in exchange for an equity stake in the companies. But those concessions, which are due tomorrow tues, have not been announced. yet.

But Obama may also have been alluding to a disagreement over how much smaller GM General Motors and Chrysler should shrink.

One of the key points of contention between the companies and the Obama administration is just how large the U.S. auto market will be in the future. General Motors has offered a more optimistic scenario and shaped its business plan accordingly.

Members of the president's autos task force have questioned those projections, however, and some industry analysts argue that the companies may need to downsize their operations even more than planned.

Staff writer Michael D. Shear contributed to this report.

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