Bloom described his style as “dentist-chair bargaining,” in which the patient “grabs the dentist by the balls and says, ‘Now let’s not hurt each other.’” Rattner figured that Bloom, with his union background, could cover the task force’s flank with the UAW and hired him. At four-thirty A.M. on February 17, the day GM and Chrysler would file their viability plans with the government, Bloom pulled out of his driveway in Pittsburgh to drive to Washington and report for work.
Rattner also brought aboard Harry J. Wilson, who had grown up in a depressed northern New York town where his mother had been laid off three times from dying textile mills. His father had fought in the Pacific in World War II and had refused to buy a Japanese car until he was eighty-three, when his new Dodge Neon broke down after just five thousand miles.
Wilson was the first in his family to attend college (Harvard), made millions in private equity, and retired at age thirty-six—the Wall Street version of “thirty and out.” In late January, after reading that Rattner might lead the automotive bailout effort, Wilson sent him an e-mail, volunteering to sign up. “I do want to flag one issue,” Wilson wrote. “I am a registered Republican, and I am a strong believer in free-market principles.” Rattner met with him anyway and signed him up.
Wilson, in turn, brought others aboard the task force, though his recruitment effort wasn’t exactly conventional. He sent some of his Wall Street contacts an e-mail that said: “The work is incredibly intense. The amount of work is massive, the timelines are tight … One should not expect this role to lead to a permanent position. Compensation = Government wages.”
As if all that weren’t bad enough, he added that a key qualification was the ability to tolerate bureaucracy. One of Wilson’s task force colleagues who saw the e-mail said that nobody who read it would sign up. One applicant, a twenty-six-year-old just four years out of Harvard, was introduced to the federal bureaucracy when he arrived at the Treasury for a job interview and had to wait two hours for clearance just to enter the building. He enlisted anyway.
All during this time GM and Chrysler were staying afloat on short-term government funding that was soon to run out. What Detroit, in its desperation, saw as slow-motion movement was regarded as warp speed in Washington, where security clearances and background checks on new federal employees usually took weeks or months. Not until mid-March did the task force assemble its full, if sparse, contingent of fifteen members, supplemented by outside consultants and investment bankers.
The group’s lack of auto industry experience provided grist for comedians. One TV comedy skit parodied a discussion of “that new-car smell” between young Deese and Larry King, both played by actors. “Awesome question, King-man,” said Deese. “Essentially, it’s an aerosol spray that uses nanotechnology to give off a distinct odor of cleanliness.” To which “Larry King” replied: “Can you make a corned-beef smell, too?”
Over the next three months, however, Deese and his task force colleagues would be like the fabled child who said the emperor has no clothes. They would ignore all Detroit’s conventional wisdom about what couldn’t be done and take their guidance from common sense instead of car sense.
That was fine with Rattner, to whom preconceived notions were a handicap. He wanted the government to approach the bailout like a private equity firm putting up its own money and that of its clients—but hopefully with more savvy than Cerberus’s botched investment in Chrysler. This would require delving deeply and unemotionally into industry forecasts and corporate business plans, then deciding whether the prospects for GM and Chrysler warranted the investment of taxpayer dollars.
Political calculations would enter the equations at some point, he knew, but those could be left to the task force’s two bosses: Tim Geithner, the Treasury secretary, and Larry Summers, chairman of the White House’s National Economic Council.
For task force members, the last half of March would be like cramming for midterm exams (which many on the team were young enough to remember vividly). The interim funding that President Bush had approved for GM and Chrysler would expire on March 31, if not sooner. The waterfall was mere meters away, but at least the tugboat had arrived at the scene. The next few weeks would produce high drama, much of it hidden from public view, to decide whether two once-great American companies could be saved before they submerged.
The viability plans that GM and Chrysler filed as required on February 17 sought an additional $21.6 billion in federal assistance, on top of the $17.4 billion they already were getting. The amount would have been breathtaking, except that it paled alongside a $700 billion bank bailout and Obama’s proposed $1.75 trillion budget deficit for 2009.
The word bankruptcy, likewise, was losing its ability to shock, at least among members of the task force. Although auto-industry insiders still viewed bankruptcy as certain death for GM and Chrysler, as opposed to a chance for a fresh start, Rattner and Bloom believed from the beginning that it might be the only option.
They saw straightaway that the companies were weighed down by enormous financial obligations to the UAW, debt-holders, and dealers. The whole purpose of U.S. bankruptcy laws was to provide relief from such burdens. They also concluded that, while the task force was dealing with a seemingly homogeneous industry, GM and Chrysler presented distinctly different issues.
In contrast to GM’s global reach, Chrysler was smaller and narrowly focused on the United States and Canada, with hardly any business in Russia and China, the fastest-growing car markets in the world. Its pipeline of new products was virtually nonexistent, due to a decade of mismanagement by Daimler and eighteen months of directionless scrambling under Cerberus. And because Cerberus was refusing to put more money into Chrysler, the company lacked any funds to develop new cars. Chrysler needed a new partner or owner, but suitors weren’t exactly lining up in the driveway. During 2008 Chrysler had scoured the world for potential partners, without success.
Ford was scrambling to save itself and wasn’t interested. The task force reexamined the proposed GM-Chrysler merger, but quickly concluded it would be like tying two stones together to make them float. Gettelfinger and the UAW also hated the idea, figuring that the projected “cost savings” simply meant firing more workers. The only foreign car company interested was Fiat, which had held discussions with Chrysler in 2008 before backing away.
Fiat long had been derided as “Fix It Again, Tony,” a sobriquet from the 1970s, when woeful quality had forced the Italian company out of the U.S. market. In 2009, however, a rejuvenated Fiat was building some pretty good cars, including the cute Fiat 500 subcompact that could be built in Chrysler’s American factories. But there was one little problem: while Fiat wanted to own Chrysler, it didn’t want to pay for the privilege.
Fiat’s Marchionne, the tough-as-nails CEO who previously had stared down GM, wanted the U.S. government to put up the money to keep Chrysler alive until new cars, engineered by Fiat, could be launched in the United States. This was a novel proposition, even to a bunch of Wall Street types who thought they had seen every sort of deal possible. As the task force “diligenced” Fiat’s proposal, the debate over Chrysler’s future—and whether it even had a future—grew intense.
Wilson and several others believed that if Fiat was the only partner available, Chrysler should just be allowed to die. The chances that Chrysler would succeed under Fiat were slim, they figured, no matter how much money the government might provide. More important, they argued, keeping Chrysler alive could destroy even more American jobs than it would save. Both GM and Ford would have a much better chance to survive, they reasoned, if Chrysler, one of their chief competitors, went out of business. It was a grim argument that wasn’t without logic.
Then again, Larry Summers and Tim Geithner were coming to the opposite conclusion, with support from Bloom and Brian Deese, who believed that simply letting Chrysler die would be too risky for a fragile economy. Geithner worried that the nation’s economic crisis was getting worse and kept talking about the nee
d to “spray foam on the runway.” That’s what airports did, he would explain, to dampen potential fires and avoid casualties when a plane seemed headed for a crash landing.
In late March there was a lot of talk in the West Wing and at Treasury about “spraying foam on the runway.” Summers argued that Chrysler’s collapse would, by itself, add a tenth of a percentage point to the nation’s rising unemployment rate. Though the fraction was seemingly small, in macroeconomic terms it would have an enormous impact on the U.S. economy.
The other factor—largely unspoken but ever present—was the UAW. The union had spent enormous amounts of dollars and devoted thousands of man-hours to the Obama election campaign, especially in the battleground states of the industrial Midwest. Everybody knew the union wanted Chrysler alive.
The man in the middle was Rattner. He was outwardly self-confident, sometimes too much so, but he found himself torn over Chrysler, even as Summers asked him repeatedly, “What would you do if you were president?” Rattner danced around the question for days, which was uncharacteristic for him. The task force sent Obama a ten-page “decision paper” that, unlike most such documents prepared for the president, didn’t make a recommendation one way or the other. With the task force and the president’s advisers divided, the decision paper simply described the arguments on both sides.
On Thursday, March 26, Rattner was in the West Wing when Summers dragged him into the morning PDB meeting—the President’s Daily Briefing—in the Oval Office. The discussion quickly turned to Chrysler, catching Rattner a little off guard, and Summers started to explain that saving Chrysler would require another $6 billion in government support.
“Larry, I read the memo,” Obama said, cutting Summers off, and not looking terribly happy at the prospect of risking more money on the rescue effort. Then he said, “I need more time on this,” and asked for another meeting later that day.
At six P.M. Obama walked into the windowless Roosevelt Room across from the Oval Office—with its painting of Teddy Roosevelt as Rough Rider hanging over the mantel—to decide whether to save the company of Walter Chrysler, the Dodge brothers, Lee Iacocca, the minivan, and the Jeep. His top advisers were there—chief of staff Rahm Emanuel, political guru David Axelrod, Summers, and others—along with task force members.
The president asked everybody, one by one, to go around the table and state their positions. Obama, clearly grasping the gravity of the moment, sat with his hands folded in front of his mouth as if in prayer while everybody spoke in turn. Rattner said he would “vote” 51 to 49 percent for trying to save Chrysler if the decision were up to him.
About an hour later, when everybody had spoken, the president asked, “Does anybody have anything else to say?” He seemed to mean it, but nobody in the room spoke up.
Now it was Obama’s turn. “I’ve come to my decision,” the president said. “It makes sense to try to move forward with Fiat.”
It was a momentous decision, one that easily could have gone the other way. Turning to Bloom and Rattner, the president said, “I want you to be tough, and I want you to be commercial.” Strictly commercial terms would have meant letting Chrysler liquidate, but short of that Obama wanted to drive a hard bargain.
Chrysler seemed to have more lives than a cat, proof of the remarkable resilience of car companies. The companies and their executives—witness Rick Wagoner at GM—had surmounted crisis after crisis when logic might have suggested otherwise. Such staying power would be a critical asset in the weeks to come.
Despite Obama’s decision to broker a Fiat deal, Chrysler was hovering on the brink of the waterfall. Getting the UAW, Chrysler’s debt-holders, and Fiat to agree on a rescue plan would be complex and difficult. Not even the president of the United States could assure that all three groups would agree to terms that the government could accept. The task force had a lot of hard bargaining to do if the Chrysler rescue was to succeed. Meanwhile, during the debate over Chrysler’s fate, hidden drama was revealing the depths of the dysfunction at General Motors.
Members of the Auto Task Force believed unanimously that General Motors, unlike Chrysler, couldn’t be allowed to collapse. Even after decades of downsizing, the company was so big, and its outright demise would be so devastating to the economy, that the case for spraying foam on the runway—layers of foam, in fact—was compelling.
GM was a sprawling organism with nearly 100,000 U.S. employees, 6,240 dealers, and more than sixty different models, with eight brands in the United States alone. The company’s legacy of dominance in its home market had fostered a culture of arrogance, though of a genteel, amiable variety, that still existed, despite decades of decline. Not even the recent experience of going broke had broken the belief inside the company that General Motors was, ultimately, indestructible. Inside the task force, though, the view was decidedly different.
Bloom, for one, had come to Washington suspecting that GM was hopelessly insolvent. His deep dive into the company’s numbers did nothing to change that belief, even though he had discovered some unexpectedly pleasant pluses. Since 2005, when Wagoner had launched his first restructuring effort, the company had been moving in the right direction, albeit slowly and haltingly. And some of the company’s new cars, notably the Cadillac CTS and Chevy Malibu sedans, were excellent.
The question was, how did those pluses square with GM’s multi-billion-dollar losses, continuing declines in market share, and a stock price that had evaporated to nearly nothing. The answer was that GM had a classic “brown pony problem,” as Bloom told his task force colleagues. The restructuring was painfully slow and inadequate, and the company’s good cars got lost among the mountain of vehicles that were mediocre or worse. Finding the good things at GM, in Bloom’s analogy, was like trying to spot a little brown pony in a huge pile of manure.
There had to be a pony in there somewhere—heck, maybe even a few ponies—but their existence was obscured by all the surrounding brown stuff. And GM’s efforts to clear away the crap always seemed too little and too late. It was a company, Bloom quickly concluded, whose culture specialized in developing reasons not to do something.
Exhibit A was the new viability plan that the company had given the government, as required, on February 17. It was GM’s third such plan in just nine months, evidence of the company’s penchant for incrementalism. The plan was another recipe for slow-motion self-improvement.
It said Pontiac would be relegated to being a niche brand. But that had been GM’s intention for years. The plan also said Saab and Saturn would be subject to “strategic reviews—including their potential sale.” But their “potential sale,” after twenty years of mounting losses, stood in sharp contrast to Mulally’s decisive action to dump Land Rover and Jaguar. More than likely, GM’s “strategic reviews” of Saturn and Saab would unearth still more excuses for keeping them anyway.
The plan projected that GM’s U.S. market share would stabilize, even though the company pledged (sort of) to cut brands and to curtail money-losing sales to car-rental companies—moves that surely would cause GM’s market share to drop. It was a glaring internal contradiction. GM also said it didn’t expect to repay the government’s loans until 2017. By that time Barack Obama, if elected to two terms, would be leaving office.
Worst of all, the plan rejected bankruptcy as an option, based on Wagoner’s bedrock belief that a Chapter 11 reorganization inevitably would lead to a Chapter 7 liquidation.
To Bloom, eliminating bankruptcy from the start was like throwing away your strongest weapon when the battle began. He regarded bankruptcy as a reckoning, a drastic step that absolutely forced a company to fix its problems. Dismissing it out of hand would give everybody—bondholders, dealers, the UAW, and the company itself—implicit permission to avoid the painful changes that would be necessary.
On March 9 Bloom, Rattner, and several task force colleagues visited Detroit, where their hope for a low-key look-see and quiet conversations was jolted by the reality of a city in panic. “Hea
r Us Out,” shouted a front-page headline in the Detroit Free Press. “We’re in Crisis.”
While the team made the trek from Detroit Metro Airport to the GM Technical Center, TV news helicopters hovered overhead charting their every turn. It was like the choppers that had tracked the fleeing O. J. Simpson on the L.A. freeways fifteen years earlier, except that Rattner & Co. were government officials instead of celebrity murder suspects. The task force members were stunned.
When they reached the gated Tech Center, northeast of downtown Detroit, they had a working lunch with management—for which each task force member dutifully paid $11 in cash in accordance with the government’s fussy ethics rules. Then the circus in the skies gave way to showtime on the ground.
GM trotted out an assortment of existing and experimental GM cars for the team to drive, including cars powered by hydrogen fuel cells and the vaunted Chevy Volt. It was exactly the sort of display that GM—and every car company in the world—had used for years to impress board members, Wall Street analysts, and journalists. But this time it backfired.
Despite all the hype and hope heaped on the Volt, Rattner and Bloom found it simply irrelevant to saving General Motors. With its likely $37,000 price tag and sales projections of only some ten thousand vehicles over the next three years, the Volt couldn’t conceivably help a company that was running out of time. The more Wagoner touted the car, which he did at every turn, the more Rattner and Bloom became convinced he was removed from reality.
Shortly after the Detroit visit, Rattner sat down for a private chat with Wagoner. Besides reviewing GM’s product and financial plans, Rattner told him, the task force wanted to assess the company’s management team. Along those lines, he added, how did Wagoner see his own future?
Wagoner got the hint, not that it was terribly subtle. In contrast to his previous public statements, he replied that he would step aside for the good of General Motors, if necessary. But he believed he had several more good years to give the company.
Crash Course Page 28