Our Changing Globe

Posts Tagged ‘business’

Rick Wagoner who was CEO (Chief Executive Officer) of General Motors Corp. for eight years, has been forced to resign by Obama’s task force, after failing to come up with a plan to restructure the ailing company, and Kent Kresa will succeed him as chairman.

The task force singled out Wagoner’s failure to win concessions from bondholders, something which it considers to be an essential step in ensuring the company’s future viability.

GM has experienced over $82 billion in losses during the last four years and recently ceded it’s long held title of ‘World’s Top-Selling Carmaker’, to Toyota Motor Corp.

Wagoner’s exit caps an unsuccessful five-month push to win a further $16.6 billion in new U.S. loans after already having received an initial installment of $13.4 billion.

He joined GM in 1977, but as CEO, he wrongly bet against gasoline-electric hybrid vehicles, and instead focused on hydrogen technology, meaning that GM didn’t offer its first full-scale hybrids until 2007, which is a full decade after Toyota’s ‘Prius’ debuted.

Wagoner gained notoriety a few months ago, after flying to Washington in a corporate jet on an aid seeking trip, and the administration now desires to be seen as unwaveringly firm in their dealings with the auto-giants, due to the unpopularity of the bail-outs.

John Casesa, who is a managing partner at the New York-based consulting firm Casesa Shapiro Group said, “This will also give the government moral authority with the other stakeholders to make them sacrifice. It’s very hard for the government to write a big check without giving some evidence of change”, and Jeremy Anwyl, the CEO of Edmunds.com in Santa Monica, California, commented, “The bailout loans aren’t hugely popular and that’s creating an issue for Obama, and one way to make the loans more palatable is to be able to say the person responsible is no longer with GM”.

GM has already said it will shed around 47,000 jobs globally in 2009 and it plans to close five assembly plants.

The administration is expected to offer the company a further sixty days in which to come up with a plan that will make the cuts even deeper, and Fritz Henderson who is the new CEO will be responsible for both reducing the huge $16.6 billion which is presently being sought, and also gaining bondholders’ approval for any future offering which will be on far less favorable terms than those that were required for the company to keep the first $13.4 billion in loans.

U.S. Treasury Secretary Timothy Geithner announced March 14th, that he will soon be able to provide details of a plan, which it is hoped will help banks clean up their non-performing assets that are still clogging the financial system.

“We’re going to move quickly to lay out a new financing program to deal with these legacy assets. We have and expect to see a lot of support for this program among potential buyers of the assets. The Treasury already is well on its way to starting a dramatic lending program to help securities markets get flowing again. Regulators will ensure banks have a backstop of capital to make sure they can do what’s necessary to restore lending”.
Geithner’s program apparently has three main components;

1. It will inject government capital into some of the country’s biggest financial institutions.

2. A public-private partnership to handle as much as $1 trillion of banks’ bad assets will be setup.

3. A credit facility with the Federal Reserve of as much as $1 trillion to promote lending to consumers and businesses will be put in place.

The Treasury’s intention is to unfreeze the credit markets by providing new incentives to banks and investors, which will hopefully encourage them to resume trading in mortgage securities and other troubled assets.

U.S. regulators are presently conducting a series of assessments to ensure that banks will have enough capital to stand the losses that they will encounter when they sell their assets.

A Treasury official, speaking on condition of anonymity, told reporters yesterday that “the Treasury will roll out enough information for investors to determine their interest in the new program, along with an operational timeframe”.

In related news, Geithner met yesterday with Chinese Finance Minister Xie Xuren, just days after Chinese Premier Wen Jiabao announced that he was worried about China’s investment in U.S. Treasury securities, and asked for assurances that China’s holdings were safe.

When asked in an interview about his meeting with Xie, Geithner replied, “The tone was very good. China is playing a very strong, very stabilizing, very important role in responding to this global crisis and we’re going to work closely with them”.