Friday, November 05, 2010

Holman Jenkins' Gets It Wrong Regarding Rick Wagoner As GM's True Savior

Holman Jenkins wrote a curious piece in last weekend's Wall Street journal insisting that Rick Wagoner has now been vindicated for his management of GM.

Contrary to the editorial's title, GM's Wagoner Gets His Due, I don't believe that's the case.

His column begins by referencing a New Yorker article in which Malcolm Gladwell evidently defended Wagoner as having saved GM. Jenkins wrote,

"Everything else you imagine constituting the GM turnaround was accomplished by Mr. Wagoner.

As Mr. Gladwell points out, he cut hourly labor costs and improved productivity until they were in line with Toyota's U. S. plants. He capped GM's health-care obligations by turning them over to the United Auto Workers (UAW) union along with a promised one-time payment.

He delivered GM to the point where its product quality and features were competitive with those of the best auto makers in the world, well before American buyers began figuring this out last year."

But he also wrote, just before that passage,

"What saved GM was the government's willingness to spend money saving the company that it would likely never get back, while allowing itself the privilege of using a bankruptcy court to ram through a restructuring that short-shrifted due process for GM's other claimants. Give anybody that kind of deal and they will appear (to themselves at least) a financial genius."

The last sentences is directed at Steve "Overhaul" Rattner, the car czar who took credit for what Jenkins and Gladwell believe was really Wagoner's rescue of GM.

With a GM IPO road show beginning imminently, I'm going to argue they are all wrong. GM isn't "fixed" yet. It's simply a partially-revived zombie on account of what Jenkins observed in that passage. Give any company tens of billions of free capital, stiff legitimate creditors in a kangaroo bankruptcy process, and it'll look better. It may even manage to creatively produce a book value per share that induces some people to consider buying the refloated equity.

But don't think for a moment that GM is "fixed," anymore than Chrysler was after Iaccoca's reign. Recall, if you will, that not so long after its 'rescue,' Chrysler fell into the lap of Daimler-Benz, only to be coughed back up as too problematic to retain. The rest is sadly recent history.

Why should GM be any different?

I maintain that Wagoner's efforts were slightly more useful than rearranging deck chairs on the Titanic. Jenkins is very kind in believing that Wagoner had righted GM, but that's simply not true, as his prior statement demonstrates. Further, both Jenkins and Gladwell evidently have conveniently forgotten Wagoner's many prior mistakes, including the Jerry York board mess and stiff-arming ideas of collaborating with Carlos Ghosn and Nissan. At the time, Wagoner was roundly, and rightly criticized for being so insular.

It took egregiously generous government aid, along with a bankruptcy, to 'rescue,' GM. Only after did it appear that Wagoner's prior moves would allow some modestly-profitable operation.

Let me put it another way. I contended, in prior posts, that bankruptcy would have cleansed GM of its financial baggage, allowing other companies to buy the good parts, or spin them back out on their own. Wagoner's successes, such as they were, only mattered to a post-bankruptcy GM. They were never sufficient, on their own, to save the firm.

As to Wagoner being the future 'go to' guy for a hypothetical President Paul Ryan? I don't think so. If Wagoner had any applicable skills to begin with, as Jenkins contends, they were largely a function of his being an accountant at GM for so many years. Government accounting makes GAAP look like a walk in the park, by comparison.

I seriously doubt Rick Wagoner's going to be of that much use to a future president. It's still not clear to me that he really accomplished all that much at GM as CEO, and he certainly didn't save it.

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