Monday, November 08, 2010

Holman Jenkins' Defends Rick Wagoner As GM's True Savior- Part Two

Last Friday, I wrote about Holman Jenkin's piece in the weekend Wall Street Journal of the end of October defending Rick Wagoner's CEO tenure at GM. Inexplicably, at least to me, Jenkins wrote another defense of Wagoner in this past weekend's edition of the Journal.

He began the column,

"Of all the responses to a piece defending GM's Rick Wagoner, most irritating were those folding their arms, pointing to GM's stock price and harrumphing, "Case closed."

A stock price may be all a stockholder cares about, just as a movie studio may only care if a movie is profitable. But there are other things to be said about a CEO, who is dealt a certain hand."

I must say I'm shocked to see Jenkins using this language and perspective, even in GM's case. Using Cisco's wild valuation ride under John Chambers since 1999 doesn't, in my view, excuse what Wagoner did, and did not do, at GM. Mind you, I'm not agreeing with Steve Rattner that GM's 'rescue' is to be credited to the current administration. In my prior post, I clearly stated that I think it's premature to declare GM to be fixed at all at this point in time.

But back to Jenkins' second piece defending Wagoner. Jenkins pounds away on his most prominent theme in the latter's defense- negotiating with the UAW to remove certain benefit costs from GM, via a one-time payment, and getting various concessions to reduce costs and improve productivity.

According to Holman,

"The only difference between the companies (GM and Ford- my note) by then was a quirk of history- the kind that makes history interesting and CEO tenure worth examining through more lenses than one."

To make his point more forcefully, Jenkins describes Ford as having,

"mortgaged everything in sight, giving it a $23 billion safety net just in time to ride out the subprime disaster. This was not management genius or clairvoyance, and it was not shareholder-optimal at the time. It was a decision by the Ford family (owner of just 2% of the shares) that the company would survive or fail with the Fords in charge rather than accept a dominant foreign partner that way Chrysler, Nissan and others had."

Jenkins essentially attempts to build a case for Wagoner having done all the right things, then getting blindsided by the 2007-2008 financial crisis, which seized up the economy, choked car-buying credit, and led to GM's bankruptcy just as it was turning around. While Ford benefited from luck and GM's government bailout, which preserved the very same vendors on which Ford, too, depended, at not cost and with no public shame to Ford from taking a government handout.

Jenkins combines so many complicating themes and events that it becomes next to impossible to untangle the mess so that one can anoint Wagoner as GM's true savior, Ford's Alan Mulally as a lucky bum, and totally remove the financial meltdown as having any bearing on either CEO's performance.

My prior posts explains some of my reasoning for believing that Wagoner had continued to lead GM toward bankruptcy. I just don't think that GM was headed for any sort of consistently superior total return performances in the years ahead. I don't think Ford is, either, by the way.

Further, I continue to believe that, had GM and Chrysler been processed through conventional bankrupty processes, the vendors supplying them, and Ford, would have remained intact, as neither firm would have been shut down, but, rather, allowed to operate under temporary court supervision. If necessary, government money could have provided some short-term financing while viable divisions and operations were either sold or spun-off. The units destined for closure would have eventually been eliminated, or should have been. Any resulting share loss would have been made up by other brands, thus providing demand for the vendors so many pundits, including Jenkins, continues to believe would have failed.

It seems to me to be a very tall order to try, in two brief editorials, to rehabilitate the image of Wagoner as CEO of GM. Wagoner was named GM CEO in 2000, while Alan Mulally took over at Ford in late 2006. How is it that Mulally's quick actions which ultimately resulted in Ford's independent survival pale next to Wagoner's comparative inaction for most of his decade-long tenure at the helm of GM?

How is it that one excuses Wagoner for so many years of inaction, then, as Jenkins does, gives him superlative reviews for the last few years, excusing the ultimate outcome due to uncontrollable economic factors? Didn't Wagoner's GM continue to own and expand GMAC, which plunged deeply into housing finance, thus worsening GM's problems?

There are simply too many confounding factors, too much time in which Wagoner was responsible for GM's fortunes, and too little hard analysis in Jenkins' editorials for me to be convinced of any of his salient points. And certainly not convinced of his conclusion that Wagoner not only performed well, but should be seen as a viable future government resource.

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