Ex-GM CEO Wagoner Was Fired For Being In Denial

rickwagoner sad tbi

On this historic day of the GM (GM) bankruptcy, Bloomberg takes a long look at what led to the ouster of Rick Wagoner, the company’s longtime CEO.

The answer: He was never realistic about the company’s prospects, and he was never keen to explore a move towards Chapter 11, instead sticking by the idea that it would be catastrophic.

Bloomberg: Wagoner said in a March 19 interview at his Detroit office that he was confident GM’s restructuring would happen without a Chapter 11 filing.

“We are doing everything within our power to work with all the constituents to accomplish it outside of bankruptcy,” he said. “It’s better not just for us, but the parties involved.”

A week later, the task force decided GM’s new viability plan was inadequate and Wagoner had to go, people familiar with the government’s thinking said. The task force picked the 50- year-old Henderson to be the new CEO, at least for now.

So with equity holders being reduced to $0, and bondholders taking a bit hit to help out the union, a big question is how much money the company wasted by operating as a zombie with little hope of a turnaround.

Karl Denninger — in his typical breathless style — thinks it’s an outrage that GM lasted as long as it did:

My view of this entire mess is that GM had no business operating past last summer.  In the 2nd quarter of 2008 GM reported a loss of more than $27 dollars a share, a number that exceeded their share price at the time by nearly twice.

The equity value in the business was at that point declared gone more than twice – period – and there was absolutely no excuse of any sort for any institution that held their debt to allow them to get away with continuing to operate for so much as one more day

They should have had an involuntary bankruptcy petition filed against them; instead GM went on to lose $7.35, $15.71 and then $9.78 in the next three quarters.

There are 610 million (roughly) shares outstanding.  If my maths is correct this means that by refusing to perform their fiduciary responsibility to the beneficial owners of these bonds the “major holders” caused to be dissipated over $20 billion dollars of recoverable monies in the form of destruction of the recovery value of those notes! 

The total outstanding debt at the present time is listed as $54.40 billion.

This means that had the bondholding companies that have this debt as part of a portfolio where the ultimate beneficiary is other parties (e.g. your grandma’s retirement that happens to in part hold GM bonds through a bond fund) they have, through malfeasance, dissipated approximately 37% of the face value of those notes – funds that were recoverable as recently as last summer!

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