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In a briefing of reporters on Sunday night, senior Administration officials, who requested anonymity, laid out the fundamentals of the new restructuring plan, which will take place in a compressed time line of just 60 days for GM and 30 days for Chrysler. They said both companies may undergo a controlled bankruptcy proceeding, which one official described as a "surgical process" that would provide a "quick rinse" of outstanding liabilities, without a dismantling of the company. GM currently has about $35 billion in debt, while Chrysler owes about $6.8 billion; the officials suggested that a significant chunk of this money would have to be renegotiated. In a white paper released on Sunday night, the White House said the goal of the GM restructuring had four points: a sustained model for profitability; a healthy balance sheet; operational competitiveness with foreign automakers; and a leadership position in developing technology for cost-effective, fuel-efficient cars.
The Treasury is prepared to provide "adequate working capital" to keep the companies going while they are being restructured, the officials said. Though they did not specify the cost of this process to taxpayers, one senior Administration official indicated that the money to pay for ongoing operations would come from the existing bailout funds that Congress has already appropriated to the Treasury. In February, the two companies requested $22 billion more in taxpayer-funded bailouts.
At GM, Wagoner will be replaced as CEO, at least temporarily, by Frederick (Fritz) Henderson, the company's current chief operating officer though Washington expects an outside turnaround specialist to eventually take the reins. A former Northrop Grumman executive and current board member, Kent Kresa, will take Wagoner's position as chairman of the board of directors, which is expected to eventually be turned over. The White House has ruled out a formal government takeover of GM as part of the restructuring. "This is and will remain a private company," said an Administration official, who added that the White House was optimistic that the company would survive the transformation.
GM spokeswoman Katie McBride said on Sunday that she could not confirm or deny the reports that Wagoner, GM's chairman for the past eight years, was prepared to step down as the company's top executive. "I don't think it's appropriate to comment on any of the speculation," McBride said. "We're just waiting to see what the [presidential] task force will announce tomorrow," McBride said.
"It's going to be an interesting day," said another GM executive, when contacted by TIME.
Wagoner's sudden fall from power was the most striking development of the new plan, but one that made political sense. In the wake of populist cries of outrage over AIG bonuses and billions in aid to Wall Street, it's easier for the Administration to justify giving more money to the floundering carmakers if GM's longtime top executive doesn't get to stick around. (See pictures of the world's cheapest car.)
A lifelong GM employee, Wagoner joined the company after graduating with a business degree from Harvard in 1977, starting in the New York Treasurer's office before taking executive postings for the company in Brazil, Canada and Switzerland. He became president of the company's North America operations in 1994, and then the entire company's chief executive officer in 2000, making him the youngest CEO in the company's history at the age of 47.
His tenure at the company was a rocky one, with Wagoner often failing to meet his own benchmarks for profitability and market share even as he expanded the company's global footprint. In the first half of the decade, Wagoner had joined other automakers in pinning much of the company's hopes for sales growth on large pickup trucks and SUVs, a strategy that became politically (and financially) poisonous last year, when gas prices spiked north of $4 a gallon. In 2008 Toyota surpassed General Motors in total car sales for the first time in 77 years; over the past four years, the company has lost $82 billion.
In Detroit, Wagoner inspired admiration. He was a guy who appeared to work selflessly for GM, someone who understood and respected the culture of the union and never talked down to its leadership. Among GM managers, he was seen as a hard-liner, vigilant in his defense of the company against outsiders who diminished its traditions and didn't understand the financial pressures it faced while trying to take care of employees and compete against cheaper labor.
During Wagoner's tenure, GM succeeded in obtaining a series of concessions from the United Auto Workers. Just last week, GM wrapped a buyout in which 7,500 hourly employees quit or retired after accepting the company's offer of $20,000 cash and a $25,000 voucher to buy a new car. In 2006 approximately 34,000 hourly employees left the company through a special-attrition program, and in 2008 another 19,000 hourly employees followed suit. Overall, GM hourly payroll has been cut in half over the past three years.
Outside of Michigan, though, Wagoner was cast as the architect of his company's demise. Several times he had the opportunity to take extreme measures that might alter GM's trajectory by allowing the union to strike and demanding concessions that might reduce the incredible amount of revenue devoted to employee pensions. Each time he blinked, and each time Washington and Wall Street looked at Wagoner in faint disbelief. He was criticized as being a slave to an antiquated corporate culture.
In recent weeks, Wagoner contemplated whether GM should file for bankruptcy. Letters were drafted and a midweek filing date and announcement targeted, but an associate says Wagoner remained unsure of whether such a dramatic step was really necessary and whether GM could ever recover from the negative publicity of a bankruptcy filing.
On Friday, Wagoner met in Washington with members of the President's task force on autos. He was asked to step down, and he later agreed to the request. A senior Administration official said there was no negotiation over the point, and no specific quid pro quo offered in exchange for Wagoner's resignation.
With reporting by Bill Saporito and Joseph R. Szczesny