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The Obama administration has decided it literally wants to be in the driver's seat as it gets ready to fork over tens of billions more to keep the automakers alive. The government tossed General Motors (NYSE: GM ) CEO Rick Wagoner from the car today.
Welcome to United States Car, Inc. Did I miss a shareholder vote?
Make no mistake; this is as clear-cut a government seizure of a private-sector business as any of the actions recently taken. As a condition of giving GM more aid, Wagoner was forced to resign, while bondholders, lenders, shareholders, retirees, and unions will also be made to accept new "sacrifices." Shares of GM opened down 25% today at $2.76.
He who pays the piper calls the tune, and it was with good reason that I cautioned GM and Chrysler to be careful about what they wished for, because when you dance with the devil you're bound to get burned. No doubt Ford (NYSE: F ) is feeling pretty good about having so far resisted the government's tainted money.
It's not so much that Wagoner is out. Getting rid of him may have been a necessity, and perhaps it would have been even better had Kirk Kerkorian succeeded in getting Carlos Ghosn of Nissan (Nasdaq: NSANY ) installed a few years ago.
The rather frightening part is the president of the United States overruling both GM's board of directors and millions of American shareholders to oust the top executive of a publicly traded company. It's eerily reminiscent of the government sacking American International Group (NYSE: AIG ) CEO Robert Willumstad and installing Edward Liddy in his place.
A change at the top of GM could have taken place had the company sought the bankruptcy protection that was so obviously the solution here. All of the costs that have been suffocating GM could have been resolved without risking taxpayer money. But in no way should regime change come about because it is demanded by politicians who are only interested in the latest poll numbers and what they mean for their re-election chances.
Wagoner presided over some massive changes at a car company in the throes of a cataclysmic industry shift, but he was also the poster boy for what was wrong with GM. Remaining beholden to gas-guzzlers like the Hummer for too long and refusing to consider bankruptcy reorganization are just a few of his sins.
But he also directed the shedding of tens of thousands of jobs, closed inefficient factories, and ushered in the Chevy Volt, which may be the car to herald GM's resurrection. While the company remained saddled with debt and legacy costs like union contracts and the health-care tab, Wagoner was guilty only of having some intractable negotiating partners sitting on the other side of the table.
Who else is POTUS eyeing?
Bankers would be wise to watch these developments very closely, considering the number of times they've stuck their hands into the till. That means you, Ken Lewis. It's hardly a stretch to say that the head of Bank of America (NYSE: BAC ) is viewed as just as much of a liability as Wagoner was. His shifting stance over when bonuses were approved for Merrill Lynch remains a trip wire, particularly in the aftermath of the political outrage over AIG's bonuses.
Anyone who is considering taking a government handout is no doubt thinking twice about it this morning. The toxicity of accepting the government's "help" is no less fatal than having to seek recourse in bankruptcy protection. The strings that come attached to the aid can end up strangling you.
It used to be said, "As goes GM, so goes the country." With President Obama taking the wheel and firing the executive of a company in the private sector, that bromide has more ominous overtones than ever.