Wagoner's Eviction from GM Serves Notice to Other CEOs
Story from the Wall Street Journal

If any U.S. banks need more cash from the government, they might have to sacrifice their chief executive to get it.

The Obama administration's ouster of General Motors Corp. CEO Rick Wagoner under the threat of withholding more bailout money underscored the potential pressure on top executives of large banks being evaluated by Treasury Department stress tests to see if they need additional capital.

Treasury Secretary Timothy Geithner said Sunday that some financial institutions would be found lacking as a result of the examinations. If those banks can't raise the money from private investors and so turn to the government, the jobs of some chief executives could be on the line, according to some bank analysts and lawyers.

Asked whether another round of government help following the stress tests would trigger regulatory encouragement to fire executives, Jeff Davis, the director of research at Howe Barnes Hoefer & Arnett Inc. said: "Emphatically, yes."

"You've got to figure it is coming," Mr. Davis said.

Banks are much more tightly regulated than automobile manufacturers, and it isn't unusual for bank regulators to demand changes in top management. But those changes are usually done discreetly, by pushing the board to fire the CEO, said Sanford Brown, a managing partner with law firm Bracewell & Giuliani LLP who served in the Office of the Comptroller of the Currency during the late 1980s.

"Regulators usually don't make overt demands," he said.

In addition, while CEO dismissals might satisfy public outrage at bankers, such moves could deepen concerns among investors, said Kip A. Weissman, a partner at Luse Gorman Pomerenk & Schick PC. "It would be a massive vote of non-confidence " in the banking industry, he said.

Among the bank CEOs considered vulnerable by some analysts and investors are C. Dowd Ritter, chairman and chief executive of Regions Financial Corp., a regional bank based in Birmingham, Ala. Regions is struggling with rising losses tied to commercial and residential real-estate loans.

A bank spokesman said Monday: "Regions remains well capitalized and we do not see a correlation with what is going on with the U.S. auto industry."

Like Mr. Wagoner of GM, Mr. Ritter led his company during the period leading up to its financial troubles.

Obama Forces Wagoner Out at GM
Originally Posted to the Detroit News

In a dramatic development on the day before President Barack Obama was to unveil his plan for the auto industry, General Motors Corp. Chairman and CEO Rick Wagoner stepped down after the administration asked him to resign.

Obama has said he wants to help the U.S. auto industry and is offering GM and Chrysler LLC fresh short-term aid, but he faces mounting public opposition to industry bailouts.

"From the government's perspective, they had to show a visible form of sacrifice," said David Cole, chairman of the Center for Automotive Research in Ann Arbor and the son of a former GM president. "At one level I'm surprised, and at another level, not at all."

GM confirmed the management change just after midnight and Wagoner released a statement."Fritz Henderson is an excellent choice to be the next CEO of GM," Wagoner said. "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."

Henderson, 50, a GM veteran who has led the automaker's European and Chinese operations, has been carrying out the company's restructuring on a day-to-day basis and knows the leaders of Obama's auto task force.

GM also said that Kent Kresa, chairman emeritus of Northrop Grumman Corp., had been named interim non-executive chairman of the board of directors. Kresa became a GM director in 2003.

Wagoner, 56, was a GM lifer who became the company's CEO in 2000 and chairman in 2003.

Industry experts credit Wagoner with pushing through reforms and a landmark labor contract at the 100-year-old automaker, but he may have moved too slowly.

"If you can criticize Rick, it's that he was incremental by nature," said Jeremy Anwyl, chief executive officer for the automotive research site Edmunds.com. "Step by step they were moving forward but they ran out of time."

After losing $82 billion since 2004, GM is subsisting on federal loans as it struggles through one of the most perilous stretches in its history. It has received $13.4 billion from the government and sought up to $16.6 billion more.

The government said late Sunday it will provide GM with an unspecified amount of working capital over the next 60 days.

There will be no immediate management changes at Chrysler, which will receive aid for 30 days as it moves to conclude an alliance with Italy's Fiat SpA.

Obama is scheduled to publicly outline his strategy for the American auto industry today in Washington.

In his statement, Wagoner said he was asked to step down during a meeting Friday at the U.S. Treasury Department.

"I think the need for something symbolic was pretty strong, and this certainly qualifies," Anwyl said.

In its assessment of GM's restructuring plan submitted on Feb. 17, the task force concluded that the plan was not viable, that GM needed a change of leadership, including changing most of the directors on its board.

It also said GM's plans did not go far enough, and it still has too many nameplates. It also said that while the Chevrolet Volt extended-range electric vehicle looks promising, it will probably be too expensive to be commercially successful initially.

Wagoner, who had agreed to work for $1 a year, is barred from getting a golden parachute or a big severance package under the terms of the government's Troubled Asset Recovery Program.

Earlier on Sunday, on one of the morning news shows, Obama said he believed the U.S. auto sector could be restructured to become a successful industry.

"But it's got to be one that's realistically designed to weather this storm and to emerge at the other end much more lean and mean and competitive than it currently is," he said on CBS's "Face the Nation." "And that's going to mean a set of sacrifices from all parties -- management, labor, shareholders, creditors, suppliers, dealers."

He acknowledged that Detroit's automakers had taken measures to address "longstanding problems in the auto industry and the current crisis, which has seen the market for new cars drop from 14 million to 9 million.

"Everybody's having problems, even Toyota and other very profitable companies," he said.

But GM is suffering more than the overall industry, and some analysts say the talk of government bailouts and even possible bankruptcy is hurting the automaker in the marketplace.

So far this year, GM's U.S. sales are down by more than half, compared with the market's overall 39 percent decline, and GM's market share has dropped to 18.2 percent from 22.7 percent a year ago.

During Wagoner's tenure, GM lost the title of being the world's largest automaker, a position it had held for 77 years.

Accustomed to being treated as one of the country's top business leaders, Wagoner was subjected to intense grilling late last year on Capitol Hill as he sought federal loans to keep GM afloat.

The automaker began to run low on cash even though it has dramatically reduced its North American operations through a series of restructuring plans. The latest calls for the elimination of 47,000 jobs, 14 plant closures and the selling, shrinking or winding down of the Saturn, Saab, Hummer and Pontiac brands.

But the restructurings failed to make GM efficient enough to withstand a severe downturn that knocked auto sales to their lowest levels in 27 years.

In spite of the company's troubles and the stock's recent plunge to a 75-year-low below $2, Wagoner retained the support of the board of directors.

Wagoner Says GM Won't File For Bankruptcy or Reduce Brands

General Motors Corp. Chief Executive Rick Wagoner dismissed the notion that the auto maker may soon file for bankruptcy, and he also said the company has no plans to sell or shutter more of its brands.

"Under any scenario we can imagine, our financial position, or cash position, will remain robust through the rest of this year," Mr. Wagoner said Thursday while in Dallas to speak to a business organization. He said the company has plenty of options to shore up its finances beyond 2008, although he declined to outline them.

The comments failed to boost investor sentiment as GM shares fell 6.2% to $9.69 in 4 p.m. New York Stock Exchange composite trading Thursday. The stock has been trading at its lowest levels in more than 50 years as concerns mount about the company's financial position amid a steep decline in U.S. sales.

GM and other U.S. auto makers are reeling as the slow U.S. economy depresses sales and as high gasoline prices push many would-be buyers to small, more-fuel-efficient vehicles and away from the higher-margin SUVs and trucks. Through June, for instance, GM's U.S. sales slipped 16%, more than offsetting strength in overseas markets.

GM has about $24 billion in cash but is burning an estimated $3 billion a quarter, prompting talk that it will need a significant cash influx to get to 2010.

"We have no thought of [bankruptcy] whatsoever," Mr. Wagoner said in response to an audience question during the Dallas event.

But he noted the widespread discussion of such a possibility could itself hurt sales, because consumers may balk at buying a vehicle from a company they think could go under. "The rumors of it don't help anything and are completely inaccurate," Mr. Wagoner said.

Meanwhile, Mr. Wagoner said GM has no plans to further reduce its number of brands. The company recently put its iconic Hummer division up for sale.

GM sells vehicles under eight different brands, but most -- including Buick, Saturn and Saab -- struggle to attract buyers.

Mr. Wagoner said GM has plenty of initiatives under way to develop more fuel-efficient vehicles, such as the Chevrolet Volt, a plug-in hybrid he said should be in showrooms by the end of 2010.

By: Bob Sechler
Wall Street Journal; July 11, 2008