Wagoner Out as Government Forces Change at GM and Chrysler

No more Mr. Nice Guy.  President Obama moved to impose sweeping restructuring measures on GM and Chrysler.  GM's CEO Rick Wagoner will step down and the majority of its directors will be replaced.  The administration's auto task force, after a month of analysis (which surprisingly only took my toddler about five minutes), determined that neither company had put forward viable restructuring plans.  The government said it would provide Chrysler with capital for 30 days, allowing it to come up with a workable plan with Fiat.  If the two reach an agreement, the government would grant another $6 billion.  If not, Chrysler would be allowed to collapse.  Yes, you read that right.  The task force is not taking the hard line with Chrysler's CEO Robert Nardelli, he will not be forced to step down as the administration does not consider him an "auto insider."  Although an executive put in place by the private equity goons at Cerberus Management, where John Snow and Dan Quayle hang their hats, is certainly an insider by anyone else's standards, maybe he's just an insider with the previous administration.  Perhaps the auto task force believes that attempting to lead Chrysler out of this mess is punishment enough for any CEO.  

GM will be granted 60 more days of working capital during which time a revamped board and management must work out a much more rigorous restructuring plan than it submitted last month.  The administration officials said that the companies were burdened by inordinate amounts of debt that would have to be extinguished (again no surprise to my child, as her first words might have been "Ga ga, GM has too much icky debt, goo goo".)  The government will, however, guarantee all warrantees on new cars from either company to keep consumers from fleeing the brands.

This move by Obama's task force is interesting, to say the least.  It would imply that the administration has no interest in supporting zombie institutions anymore.  However, it has yet to take this type of action with the nation's struggling banks.  Is this merely a sign that the government is going to get tougher on the banks after the stress tests?  One can only hope.  Needless to say, the market isn't taking this news very well.  After all, government support is the only thing keeping the market afloat.  When it gets yanked, look out below.