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Obama offs Waggoner

Editorial Staff

Whilst Obama lords it over a meeting of his new best friends - the bankers - Rick Waggoner of GM becomes the scapegoat - someone had to go to prove Obama's got steel under that smile.

Obama hasn't even got close to 100 days into his term, the traditional measure of a President's success, before he's having to find ways to prove he is actively doing something to try to fix the desperate straits of the US economy.

Having last week decided that investment bankers and hedge funds were needed to bring in the funds to buy up toxic assets from banks, his next phase is to show solidarity with banks in general.

And so, as no heads roll at banks, Obama needed a high profile scalp.

Tomorrow, Tuesday, GM will fail to meet the targets set for it to receive another round of funding. And so, yesterday, Waggoner heard that his head was the price to pay for GM being offered a further lifeline and invited to resign. True - he has failed to slash the headcount, the company is still reliant on the wrong type of vehicle and several of its foreign subsidiaries are in receivership or nearly so. But not all of that can be laid at Waggoner's doorstep. Obama made it clear when the motor manufacturers said they needed help that he did not want to see mass redundancies and pay cuts. Yet, every analyst that is independent of pressure from any of the participants agrees: headcount and pay are the two biggest drains on the company's budget - and worse, they are producing cars no one wants to buy.

The US car industry is remarkably introspective: its subsidiaries make "world cars" that sell everywhere except the USA. And its US businesses make cars that the rest of the world doesn't want. There are 5,000 million people around the world and the USA is, in global terms, a small part of that global market. Yet that is what the US manufacturers focus on - and lose market share to European and Japanese cars that meet the needs of a much larger market.

In short, the US manufacturers have driven themselves into a cul-de-sac of servicing a niche market that is rapidly shrinking.

Waggoner is victim of politics: he cannot say "Americans have got it wrong." He has to follow the path set by the US auto industry. It is in self-destruct mode, and Obama is at the wheel. Obama needs to specifically and publicly recognise that Detroit workers are too expensive, produce too many shabbily finished vehicles and don't produce enough of them per man, and that niche marketing of large SUVs etc. should be left to the specialists, not dominated by mainstream companies.

Today, Waggoner may look like a victim. But he's probably well out of it. Better to jump from a moving train before it hits the stocks than to be trapped in the wreckage.

And there is every likelihood he's got a decent exit package that far exceeds those available to suppliers, dealers, staff and shareholders who are looking increasingly likely to end up with nothing.