The Auto Loans: Will Obama’s Threat and Wagoner’s Departure Bring the Other Stakeholders to the Table?

Rick Wagoner has announced that he is stepping down from GM, and President Obama has announced that the industry has not taken sufficient steps to get “there,” wherever that is. He is putting the onus on GM and Chrysler to cut deals with the suppliers, employees and bondholders to put the companies in a position to come out the other side of this economic downturn in a position to thrive.  The alternative would be to let these companies file for bankruptcy. My guess is that Wagoner has taken this as far as he can and he is stepping away to allow another person to go back the stakeholders and move to the next level. The President has to leave the possibility of bankruptcy on the table to get the stakeholders to move.  Is this a question of who blinks first or are the stakeholders simply negotiating to get the best deal they can before they blink? I think it is the latter. Unfortunately, everyone knows that bankruptcy can have severe consequences for the overall economy and should be out of the question for this administration.  On the other hand, sometimes the President has to be unpredictable.  Would he really allow bankruptcy to take place? I don’t think so, but the stakeholders may not be so sure.

 

I don’t know about Chrysler, but GM is getting into a position to come out the other side of this as a successful player, possibly leading the industry to the next level. I will say again, there is no reason for anyone to buy a car today unless a car has to be scrapped. No one will make money at today’s sales levels, which are likely to continue until 1) the economy recovers and 2) autos provide a better value proposition. It does mean a bigger check will have to be written to get through this.

 

It is too bad that Wagoner won’t be leading the effort at GM.  Maybe some day he will get the credit he deserves for repositioning the behemoth that could lead the industry to the next level.  Unfortunately, at today’s sales levels, the cash is disappearing quickly. There isn’t much time. I give the President credit for the way this has been positioned.  This is really up to the bondholders and the employees now. I think this is the most critical part of the economy on the table at the moment. How this plays out will determine how quickly we come out of the economic mess we are in, and the role US transportation will play in the lower carbon world of the next several decades.  

 

This entry was posted in Automobile Industry by Jack Rivkin. Bookmark the permalink.

About Jack Rivkin

Jack Rivkin retired in 2008 as EVP, CIO, Head of Private Asset Management of Neuberger Berman(NB) and from NB's Executive Management Committee. He was also on the Lehman(LB) Council on Climate Change(CC) and the NB CC Fund Advisory Board. He has been engaged with the United Nations and other entities on policy issues related to Private Capital and CC. He is an Associate Fellow of the Asia Society. He has continued on the NB Mutual Fund Board and with his CC responsibilities. He began his investment career in 68 as an analyst at Mitchell Hutchins(MH), and became Director of Research(DOR) there. After Paine Webber(PW) acquired MH, he served as DOR; CFO of PW; CEO of PWMH-the equity trading and investment arm of PW; Chmn of MH Asset Management and President of PW Capital. 87-92 he was DOR and, subsequently, Head of the Worldwide Equities Division of LB. 93-95, he served as a Vice Chairman and DOR at Smith Barney (now Citigroup). He was an EVP with Citigroup Investments 94-01, responsible for private equity investments. He was also an adjunct professor at Columbia University teaching a course in Security Analysis. He joined NB in 2002. He is the co-author of “Risk & Reward—Venture Capital and the Making of America’s Great Industries,” Random House, 1987. He is a regular guest on various media. He is the principal subject in a series of Harvard Business School cases describing his experience as DOR and Equity Head at LB. He has served as a director of a number of private companies and the NYSSA. He is currently a director of Idealab, Dale Carnegie, Operative, World Policy Institute and other private companies. He is a member of the Economic Club of NY, the Anglers Club, Theodore Gordon Fly Fishers, and a lifetime member of Trout Unlimited. He continues to be an active private equity investor when he isn’t fly fishing. Mr. Rivkin earned his Professional Engineering degree from the Colorado School of Mines and his MBA from the Harvard Business School

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