General Motors' chairman and CEO Rick Wagoner at the weekend fell on his sword and quit under pressure from the Obama administration ahead of today's presidential announcement that gave GM and Chrysler more time and capital to restructure, hinted at structured bankruptcies, revealed new incentives to spur sales and promised support for communities hit by the auto industry downturn.
"Rick Wagoner is stepping down as chairman and CEO, effective immediately," GM said in a statement on Monday. Wagoner, 56, was named president and CEO in 2000, and became chairman in 2003.
Fritz Henderson, current GM president and chief operating officer, is now CEO. Henderson, 50, was named to his current position in 2008. He was previously vice chairman and chief financial officer.
Kent Kresa, chairman emeritus, Northrop Grumman Corporation, has been named interim non-executive chairman of the board of directors. Kresa became a GM director in 2003
Kresa said: "The board has recognised for some time that the company's restructuring will likely cause a significant change in the stockholders of the company and create the need for new directors with additional skills and experience. The board intends to work to nominate a slate of directors for the next annual meeting that will include a majority of new directors taking into account the addition of new directors, retirement, and decisions by individual directors not to stand for re-election, although the specific individuals who will be nominated or choose not to run or leave the board are not yet known."
In a separate statement, Wagoner said: "On Friday I was in Washington for a meeting with administration officials. In the course of that meeting, they requested that I "step aside" as CEO of GM, and so I have.
"Fritz Henderson is an excellent choice to be the next CEO of GM. Having worked closely with Fritz for many years, I know that he is the ideal person to lead the company through the completion of our restructuring efforts. His knowledge of the global industry and the company are exceptional, and he has the intellect, energy, and support among GM'ers worldwide to succeed. I wish him well, and I stand ready to support him, and interim non-executive chairman Kent Kresa, in every way possible."
"For them to change captains right in the middle of the rapids is not something GM would have done, but now Obama or [treasury secretary Timothy] Geithner can say, 'We've asked them to make the ultimate sacrifice,'" IHS Global Insight analysts Aaron Bragman told Reuters.
Reuters said word leaked from the administration late on Sunday that GM and Chrysler would each be given capital and time to accelerate their attempts to restructure and survive.
A government official, requesting anonymity, said Obama would announce on Monday that GM would be given 60 days to determine the best path forward.
Chrysler would be given 30 days to complete a proposed alliance with Fiat. If that deal is successful, the government could extend up to US$6bn in new assistance.
The news agency noted that Obama had, last week, cited mismanagement "over the years" for some of the auto industry's severe financial problems, a point that stung Wagoner since his counterparts at Ford, Alan Mulally [ex-Boeing], and Chrysler, Bob Nardelli [ex-Home Depot], are relative newcomers brought in from outside the industry.
GM has lost about $82bn since 2004 as its problems mounted in the US market. GM has lost about 95% of its share value since Wagoner took over as CEO.
GM has also failed to clinch needed concessions from bondholders that government officials had set as targets to justify further aid, Reuters noted.
Together, GM and Chrysler have asked for another $22 bn in government loans to ride out a global sales slump and the weakest US market for new cars in almost 30 years. Ford, which is also struggling, is not seeking federal help.
Obama said earlier on Sunday that GM and Chrysler had not done enough to save themselves since being granted a $17.4bn bailout in December. GM has received $13.4bn and seeks as much as $16.6 billion more; Chrysler has accepted $4 billion and says it needs an additional $5 billion.
"They're not there yet," Obama said in a taped interview on the CBS-TV news programme Face the Nation.
"We think we can have a successful US auto industry. But it's got to be one that's realistically designed to weather this storm and to emerge ... much more lean, mean and competitive than it currently is," Obama said.
"That's going to mean a set of sacrifices from all parties involved - management, labour, shareholders, creditors, suppliers, dealers. Everybody's going to have to come to the table and say it's important for us to take serious restructuring steps now in order to preserve a brighter future down the road," he said.
GM and Chrysler have run through most of the initial bailout and are at risk of bankruptcy without immediate help, the news agency added. Chrysler has said it needs additional funding as soon as Tuesday to avoid a cash crisis.
But neither automaker has finished the cost-cutting overhaul dictated by the terms of the auto industry bailout launched by the Bush administration that set a deadline of 31 March for determining whether the companies can be saved.
Analysts have said that presents a dilemma for the Obama administration. GM and Chrysler employ almost 160,000 US workers and allowing the automakers to fail would cause widespread hardship, especially in the industrial-belt midwest, at a time when the economy remains mired in recession.
As confidence has grown that the Obama White House will not push the car companies into bankruptcy (though Obama did not rule it out on Monday), it has also become more difficult to clinch cost-saving deals both GM and Chrysler need to reach with creditors and the UAW.
Though both have won pending contract concessions from the union intended to bring factory labor costs in line with those of Japanese automakers that have operations in the United States, they have failed to meet other targets set for them by the government in December. In particular, talks intended to cut debt at both companies have failed to produce results over the past six weeks.
GM has been negotiating with its bondholders to reduce by two-thirds the roughly $27 billion in debt that they hold. GM and advisers to its bondholders have exchanged proposals on a debt restructuring, but have made little progress toward a deal.