The news media is all abuzz with commentary about the White House asking the CEO of General Motors to resign if the company wanted more bailout money. Many people seem appalled that President Obama – and the US Government – would dare to mess with a business in such a manner. While I understand why people may initially be concerned at what they see as government interference, I think that many of these people may be a little naïve on what goes on in the real business world.
First, let’s go back a bit. I wrote last November ("The Frequent Critic – Should the Auto Companies Be Saved?”) that I was leaning towards letting one of the car companies go bankrupt. Of course, the job loss, plus the effects that this would have on other business who rely on GM to sustain them would have a huge negative effect on the economy. I still think this would have been the best way to go, and it would have forced a reorganization of one of these car companies. If that company was GM, then more than likely the CEO would be on the outs anyway.
Headlines like the one written on the CNN web site today - ”Obama To Detroit: Restructure Or Else” - makes it sound like the government is just throwing their weight around. I do not see it that way at all. I see it as the White House just asking for what any person would be asking if they were asked to invest a huge amount of capital in any business. It’s no different than someone who buys enough stock in a company in order to get a say in how it’s run, or what happens when one company acquires another. Executives sometimes find they are quickly out the door once big money comes in and makes an investment. I worked for a company that was purchased by various companies and/or investment groups over a period of 25 years, and almost every time big money came in, a big executive or two got walked out, in many cases because that executive just wasn’t doing the job or wasn’t helping the company to grow. Sometimes there didn’t even seem to be a good reason.
I think that it’s about time that the US Government demands some action for all the money it is putting into these companies. My only regret is that they didn’t do the same thing with the investment banks when they bailed them out. I don’t blame Obama for that issue because the bank bailouts were already well in motion by the time he took office.
I am sure that the US Government does not want GM to go bankrupt. But I also don’t think the US Government wants to continue to throw good money after bad. The car companies need to change, and they need to change fast. The demands made by the White House means that things are not business as usual. If the car companies want money, and they want to be saved, it can’t be business as usual any more.
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