Iacocca: GM has a hard road ahead
The word "unprecedented" has been used a lot to describe emergency actions taken by the government to avert crisis, but in some cases there are plenty of parallels between past in present. A case in point: the use of Troubled Asset Relief Program (TARP) funds to aid automakers Chrysler and General Motors (GMGMQ). While politically controversial because it extended relief beyond strictly financial circles, it is similar to the 1979 loan guarantee the U.S. government granted to Chrysler.
If the government's previous foray into overseeing an auto company is any indicator, it is not going to result in an easy ride, Lee Iacocca said in an interview. Iacocca would know; he was the CEO of Chrysler when the company received the loan guarantees. "They're on you day and night. Their oversight is just too extreme . . . That's why our 10-year loan, we paid it back in three years. We couldn't stand the government. The bureaucracy kills you."
Iacocca expressed confidence in Chrysler and Ford (F), saying that he would invest in them if he could. A majority stake in Chrysler was purchased by private equity firm Cerberus Capital for more than $7 billion in 2007; as part of the deal with the government, Cerberus' equity stake became worthless when Chrysler filed for Chapter 11 bankruptcy. Chrysler exited bankruptcy protection two weeks ago to merge with Fiat, 42 days after originally filing. Ford has avoided having to take government funds.
Although Iacocca believed a government-supervised reorganization would ultimately benefit Chrysler, he could not say the same about General Motors. "GM's got more serious problems. . . They're just big. They're huge. They've got many more problems than Chrysler has with just sheer size." General Motors has been trying to sell several of its brands, and has a line on deals for Hummer, Saab and Saturn, as the company downsizes under bankruptcy protection.
As the government increases its involvement in the industry, it has accomplished what many expected to happen at TARP-receiving financial companies: shake-ups at the top. Rick Wagoner was forced out as CEO of General Motors in March by the White House, and Bob Nardelli departed from the top spot at Chrysler upon the conclusion of bankruptcy proceedings.
The restructuring of American-based auto manufacturers comes as demand for cars has fallen by 40 percent. Even Toyota (TM), long praised for its operational prowess, is struggling; the company made headlines for forecasting that it would show an operating loss for 2009, its first in 70 years.