Rick Wagoner VS Ken Lewis

Rick Wagoner got sacked. The order to fire him came straight from the White House. We have not seen that very often in US history. Possibly Mr. Wagoner deserved to get the boot. He worked pretty hard, he made progress on a lot of GM issues. Five years ago the stock was trading at 60 and the bonds looked money good. What Mr. Wagoner failed to do was to anticipate a 50% drop in annual vehicle sales from the 2006 levels of 16mm units sold to a lousy 8mm running rate so far this year. No one could have predicted that unprecedented drop in demand. If Mr. Wagoner had proposed a plan to his Board two years ago that anticipated the future more accurately the Board would have sacked him on the spot. Damned either way.


If Mr. Wagoner is to be held responsible for the collapse of the economy and its effects on GM one has to wonder what other CEO may come into the government’s cross hairs. Ken Lewis of Bank of America has to be high on that list. If the decision were to be up to the numbers Mr. Lewis has a problem.

GM has taken 14 billion of TARP money. GMAC has another $5 billion from the Fed. The GMAC side of this will probably work out. What is at risk is the $14 billion.

Bank of America on the other hand has taken $45 billion of TARP funds. There is talk from Mr. Lewis that some of this may be paid back. Do not hold your breath. BAC’s first quarter is going to look ugly.


GM reported a loss of $31 billion for the year. That gets you your walking papers.

Mr. Lewis reported a gain for the year. He noted in his year end remarks that for the year BoA had capital market losses of $10 billion and $27 billion in credit losses. Credit losses are likely to rise for the next year. As for that ‘Full Year Profit”, well, wait for the 1st quarter report. The $2.4 billion loss in the forth quarter does not include the full impact of the Merrill legacy positions.

Mr. Wagoner bet the ranch on an electric car. That seemed like a good idea when oil was 200% higher. As for Mr. Lewis, time will tell if his purchases of Country Wide and Merrill were so smart.

The point of this is not that Mr. Lewis should get the axe. He should not. If we are going to fire everyone that misjudged the developments of the past 18 months there would be very few CEO’s still standing. At this point America needs Ken Lewis more than Ken Lewis needs his job.

The market fell by 3% today. The talk was that the GM news was to blame. Bunk. The idea that GM is going to file a chapter any day has been in the market for weeks. Just look at the pricing on the bonds. What scared the money today was the strong-arm tactics of the White House. The growing concern is that we are spending $3-4 trillion to ‘preserve’ what we had, but at the same time were are tearing down everything that we thought was worth preserving in the first place.