Friday, 19 September, 2014.
Home :: Business & Government :: GM: A Troubled StoryText Size: 1 2 3

Article Text

GM: A Troubled Story

by Adam Richman


Wagoner departed in disgrace.
On Sunday, March 29th, General Motors CEO Rick Wagoner announced his immediate resignation. Wagoner now joins millions of Americans who all share a common characteristic. They have all been fired.

Under normal circumstances, such an announcement would cause a bit of stir in the business press, cause some fluctuations in stock prices, and then subside once a new CEO has been selected. In times of economic strain, such as those in which we now find ourselves, the ousting of the head of a major American corporation makes people a lot more nervous, especially considering the fears about the potential for failure among America’s car manufacturers. Still, that is not the reason Wagoner’s firing is gaining such wide attention. What has people talking is who fired Wagoner, and what that means for our country’s future.

Ordinarily, poorly performing CEO’s would be ousted by a company’s board of directors—essentially a group of people overseeing the company’s activities on behalf of the owners—but this is a special case. Wagoner’s exit comes at the request of President Obama. However, one should not let the term request fool them. GM and Chrysler were beneficiaries of billions of dollars in government loans meant to keep them from failing as the economic crisis worsened. The emergency loans have not been enough to stabilize the companies and the auto makers are asking for billions more. The Obama Administration has agreed, conditional on corporate restructuring.

This is an almost unprecedented event. GM is the ninth largest company in the world, employs tens of thousands of people, and has been bedrock of the American industrial base for decades. Now Wagoner’s departure may herald the beginning of numerous government mandated corporate adjustments.

Now, Obama has not nationalized GM and it will remain a private company free, to a certain extent, from government interference. Wagoner’s firing was not an act of sheer government fiat. No executive orders were issued declaring Wagoner’s tenure at an end and no Federal agents showed up to escort him from his office. However, that is not to say the President does not have incredible power. If the situation between GM and the President were a poker game, Obama would not only hold all the cards, but the chips, the table, and the chairs. GM needs the government aid to survive and given the public’s anger at corporate mismanagement and bailouts, any money will come with significant strings attached. The companies need money and the only institution lending out the required amounts is the government.

While the restructuring will be painful, it will hopefully save GM. In the long-run, we should be more worried about this increase in executive power. Even the broadest readings of the powers granted to the Federal government do not seem to include dictating to private companies in exchange for huge loans. Never before could a president dictate to one of the world’s largest corporations. Whether good or bad, the government is now one of the most powerful forces in the business world.

More Info

Actions

Share this article...

More from this section...

Making (or Losing) Money the Fun Way
by Nitin Agarwal

An examination of why it is important to invest your money and easy advice on how to go about doing so.

Judicial Activism: Old Problem and Old Debate
by Liz Carbone

A brief look into the history of Judicial Activism.

Baseball Economics
by Steven Elliott

How does the business of baseball stay afloat in a sinking economy? Read on to find out.