Detroit Reacts to White House Shock Wave

Amid Leadership Changes and Merger Deadlines, the Effect on Media, Marketing Remains Unclear

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DETROIT (AdAge.com) -- As General Motors Corp. admitted bankruptcy is indeed a possibility and Chrysler rushed to meet its newly imposed 30-day deadline to ink a deal with Fiat, a Motor City stunned by the ouster of Rick Wagoner is coming to the hard realization that the Obama administration means business.

Fritz Henderson, GM's former Chief Operating Officer, will be the successor of the ousted Rick Wagoner.
Fritz Henderson, GM's former Chief Operating Officer, will be the successor of the ousted Rick Wagoner. Credit: AP
The bomb Washington dropped on Detroit today gives Chrysler a month to finalize its deal with Fiat and pushed Mr. Wagoner, GM's chairman-CEO, out while giving the carmaker 60 more days to come up with a tenable revitalization plan. Though Chrysler will get no cash from Fiat, the benefit is that it will tap into the Italian company's small-car expertise to bring more fuel-efficient models to the U.S. faster and cheaper than spending billions of dollars developing them on its own.

Detroit's vast ecosystem
One of the biggest questions is what would happen to the nation's already struggling economy -- not to mention Detroit's and the ecosystem around it, including media companies and suppliers such as ad agencies -- in the event of a bankruptcy by one or both automakers. "While Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plans they develop," President Barack Obama said at a press conference today. "That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger."

Even GM, which had used strong anti-bankruptcy rhetoric under Mr. Wagoner, seems to have changed its tune. "Our strong preference is to complete this restructuring out of court. However, GM will take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process," the carmaker said in a statement.

The most pressing financial problems at both automakers remain issues such as labor costs and union concessions, but as yet marketing has not been a major topic of discussion beyond a revelation by GM that it would cut those costs by $800 million this year. Still, what that future might hold is a major concern for the ad industry. Mr. Wagoner's successor, former Chief Operating Officer Fritz Henderson, won't speak publicly until tomorrow. But observers are already speculating that Mr. Henderson won't be as staunch a supporter of marketing as his predecessor.

"Rick had a strong desire to be aggressive in marketing," which "may be diminished" under Mr. Henderson, said Mike Jackson, who left GM in mid-2007 as VP-marketing and advertising in North America. A GM spokesman did not return calls for comment.

In his address today, Mr. Obama issued a scathing indictment. "It is a failure of leadership -- from Washington to Detroit -- that led our auto companies to this point," the president said in his remarks. "Year after year, decade after decade, we have seen problems papered over and tough choices kicked down the road, even as foreign competitors outpaced us. Well, we have reached the end of that road. And we, as a nation, cannot afford to shirk responsibility any longer. Now is the time to confront our problems head-on and do what's necessary to solve them."

Support for Wagoner
Yet much of the chatter in Detroit seemed to support Mr. Wagoner. GM's vice chairman-global product development, Bob Lutz, who moves to a senior advisory role April 1, called his boss a "ritual sacrifice" and had nothing but praise for the man who hired him in 2001.

Mr. Lutz told Advertising Age that anyone accusing Mr. Wagoner of "focusing on big vehicles at a time of the world's lowest fuel prices and runaway customer demand for V8 trucks of any configuration is Monday-morning quarterbacking of the lowest order." He said the "dirty little secret that you won't hear mentioned is that, with gasoline back at around $2-a-gallon, the little cars and hybrids we are all supposedly clamoring for are stacking up on dealer lots, and no make is spared."

Gerald Meyers was appalled by the administration's move to oust the GM chief, saying that "there's no way the chief executive of this country should be firing the chairman of the nation's largest manufacturer." Mr. Meyers, former chairman of American Motors Corp. and now a professor at University of Michigan Ross School of Business, noted that not one member of Washington's auto task force is from the auto industry.

Doug Scott, senior VP of consultant GfK Automotive, said the White House needed a sacrificial lamb to appease some hostility on Capital Hill toward Detroit, as polls show 60% of Americans oppose federal loans to GM and Chrysler. But revitalizing the two carmakers in the industry's worst downturn in decades "isn't as easy as checking boxes," because bondholders and the United Auto Workers are resisting proposals from GM and Chrysler to help.

Chryler's upbeat look
At Chrysler, Vice Chairman-President Jim Press tried to remain upbeat in a presentation to its 3,000 dealers this afternoon, said Massachusetts dealer Tom Barenboim. He said Mr. Press told dealers the automaker is "putting its soldiers in line to forge the company ahead and be a global player" with Fiat.

Mr. Barenboim said although his buyers are still having a very difficult time getting financing for their new vehicles, he's optimistic. "The market is filled with opportunity because people will need to buy cars sometime in the future." He figures his Chrysler-Jeep-Dodge store is well-positioned because new models have been getting great third-party endorsements. Still, he, like many in the auto industry, are frustrated that financial outfits such as AIG have gotten lots more federal funding without the same requirements.

Jeremy Anwyl, CEO of auto site Edmunds.com, sided with the president for criticizing GM and Chrysler for missed opportunities. But he cautioned that the administration must do its part to avoid similar missteps in overseeing the two automakers' restructuring. "It's critical the government gets its hands dirty and make it clear what is needed from the bondholders and unions, and must recognize valid assumptions about the competitive marketplace," he said. "Currently, the administration's attitude seems to be 'We'll know a viable plan when we see it,' and that's not going to get anyone very far."

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