Overhaul

by Steven Rattner

  I found President Obama's decisionmaking style to be consistent with his "no drama Obama" reputation and on a par with the best CEOs I had spent time with on Wall Street. In addition to having done his homework, he remained engaged on a subject far from his comfort zone and probably equally far from his zone of interest. He was decisive when his advisers were divided, supportive when they were not. Perhaps most important, he showed courage in making a tough, politically risky decision.

  And notwithstanding the disagreement over Chrysler, those more expert in presidential decisionmaking than I—including Chrysler opponents such as Diana—felt that the process worked well. Both sides got their say and the President decided. For my part, I was also somewhat shocked to realize that I was, at fifty-six, the oldest person in the room.

  The President accepted our other recommendations without comment, and after a brief discussion about preparing the public announcement for the following Monday, March 30, the meeting adjourned. In hindsight, it is remarkable that our proposed management changes—including the ouster of Rick Wagoner as chairman and CEO of GM—never came up. Within a few days it was to figure large in our lives.

  Larry had raised the management question with us early on and in his Socratic way, probing our assumption that Wagoner had to go. But Larry had never seriously questioned the need for new management; for him, it was a matter of who, when, and how. Initially Larry was of the view that, for the sake of continuity, Wagoner should stay until he'd seen GM through the traumatic bankruptcy. To us that seemed a terrible idea. We argued that planning and executing the restructuring was effectively the first chapter in GM's future, and therefore it was critical to have a new CEO who would "own" the result. In due course, Larry came around to our view.

  We never talked about who should do the firing. Throughout its rescue operations, the Obama administration had wanted to minimize at least the appearance of intervention in the private sector. Had I thought to flag this question for Larry, he might well have suggested a quiet word with trusted GM board members. Alternatively, he might have asked that Tim do the firing, as Hank Paulson had dismissed the heads of Fannie Mae and Freddie Mac. (None of the previous dismissals had created any fuss.) But when the question never came up, I simply concluded that this unpleasant task was up to me.

  So I'd made preparations on the assumption that the President would approve our plan and that I'd have to inform GM right away. We'd asked Rick and his colleagues to come to Washington the next day on the pretext of being briefed on the President's upcoming announcement. As part of their itinerary, I'd scheduled a private meeting for myself with Rick as soon as they arrived at Treasury. I knew that the GM board held a conference call every Friday at noon during the crisis, and I wanted to tell him before then.

  While inscrutable, Rick turned out not to be oblivious. He had divined from our previous conversations that his future was in doubt. That morning, he spoke to George Fisher, GM's lead director, with whom I had served on the board of Brown University. "I had good experiences with Steve at Brown, and Steve would know that it was in the government's best interest to keep you around," Fisher reassured Wagoner, emphasizing his view that GM was finally producing more realistic projections and plans.

  Promptly at 9:15, Rick arrived and took a seat on the red fake-leather couch in my office. I took a chair from my conference table and placed it opposite him. I went straight to the point. "In our last meeting," I said, "you very graciously offered to step aside if it would be helpful, and unfortunately, our conclusion is that it would be best if you did that." He took the news impassively and at first did not say a word. I later learned that coming on the heels of the Fisher conversation, he was devastated.

  I told him of our intention to make Fritz the interim CEO while we looked for a permanent replacement. Rick reacted to that, cautioning me against hiring an industry outsider to run General Motors. "Alan Mulally called me with questions every day for two weeks after he got to Ford," he said.

  Next we talked about the GM chairmanship. I hadn't succeeded in finding an outsider for the job and the day before had suspended my search. Instead I'd pored over the list of board members in hopes of identifying a director who could make a credible interim chairman. Kent Kresa stood out. I did not know him, but he had the right pedigree. He'd been successful as chairman and CEO of the defense contractor Northrop Grumman and had served on the GM board since 2003, long enough to know the company and not conspicuously overlong. Larry, it turned out, knew him slightly from a foundation board on which both had served and had a good impression. I'd made a couple of calls to friends who also gave positive feedback. So now I asked Rick if he would be willing to see if Kresa would step in as interim chairman for a couple of weeks. Rick concurred and graciously agreed to ask him.

  As this awkward conversation drew to an end, Rick suddenly asked, "Are you going to fire Ron Gettelfinger too?" I replied that I was not in charge of firing the head of the UAW. There wasn't much more to say. I offered to let Rick meet alone with his colleagues, who were waiting upstairs in a conference room to start the briefing session, but he said no, we should stick to the schedule. (I don't know when he planned to tell them.)

  A long walk together through the halls of the Treasury would have been uncomfortable for us both, so I asked my assistant to help him find the meeting room while I gathered my colleagues, and made sure to give them a head start. But my assistant was new to Treasury, and it took them almost that long to find the conference room. When Rick walked in, Ray Young half jokingly asked his boss, "Do we still have jobs?"

  "You do," said Wagoner. Though he hadn't planned to, he told them what had just occurred—which is how Fritz Henderson learned he was to become interim CEO. Rick had barely delivered the news when Harry, Ron, and I arrived.

  We had no way to know what we had walked in on, and my colleagues and I plunged into our briefing about the President's forthcoming speech. Henderson, who had suspected the management change was coming, was now dwelling silently on the word "interim." "This is not going to let me be effective," Fritz thought. Then he put the worry aside and forced himself to pay attention to what we were saying about the deadlines and conditions that the President was about to impose—deadlines and conditions it would be his responsibility to meet. "The probability of bankruptcy just went up a lot," he realized as we described the plan.

  But Ray—whose lack of common sense seemed limitless—did not get the message. As we finished, he fretted aloud that GM would have to reconsider the timing of its bond-exchange offer. Harry gently suggested that a lot of things at GM would now have to change, but Ray still wasn't getting it. I couldn't help myself and snapped, "It should be obvious that the bond exchange is the least important thing we have to worry about." Fritz rested a hand on Ray's forearm and quietly said to him, "We'll come back to this."

  Rick said not a word ("He looks shell-shocked," Harry thought), and the uncomfortable meeting soon came to a merciful end. After I got back to my office, still unaware that Rick had delivered the news, I waited what I thought was a reasonable interval for him to do so and then called Fritz's cell phone.

  "What do you think?" I asked.

  "Thank you for your confidence in me," Fritz replied. "Let's talk about one thing which I don't think is right—making my title interim CEO. You can fire me any time you want, but at least give me a chance to succeed."

  "Let me think about that," I said.

  Fritz hung up, thinking, "Steve gets this, but he's got to go through a bunch of hoops to change this, because the decision has already been made that I would be an interim and that would have to get undone." When he didn't hear back from me right away, he was even more sure of his initial instinct. In reality, my bosses didn't much care whether Fritz was called interim or not, so I didn't need to clear it with them. While I understood Fritz's concern, my hesitation about agreeing to his request on the spot reflected my inexperience with such matters and my desire to consult my new guru Jack Welch before r
esponding. When I caught up with him, his reaction was instantaneous. "Fritz is right," Jack said. "If he's called interim, he won't have a chance."

  That afternoon, I received a call from a furious George Fisher, calling in his capacity as GM's lead director. (Like most Fortune 500 companies, GM had a lead outside director in an effort to provide a counterweight to the combined chairman and CEO.) George was a gracious man who had been CEO of both Motorola and Eastman Kodak. Unfortunately, as his conversation with Rick that morning indicated, as lead director he had been pretty much blindly supportive of Rick. "We are absolutely convinced we have the right team under Rick Wagoner's leadership to get us through these difficult times and on to a bright future," Fisher had said in August 2008, immediately after GM announced a $15.5 billion quarterly loss. Now he lashed out at me for firing Rick. "I think you are doing a lot of right things, but I think this is wrong," said Fisher, who privately found our actions "abhorrent."

  He also felt—with some justification—that the selection of Kresa as interim chairman was a slap in his face. I had expected this and had deliberately not asked Kresa or anyone else to take Fisher's place as lead director, which I pointed out. "I noticed that and appreciated it," Fisher said, calming down as he spoke. Of course, with Kresa as a nonexecutive chairman, the lead director's role had been rendered moot.

  Shortly afterward, I got a call from Bob Joffe, the tall, bespectacled sixty-five-year-old former presiding partner at the law firm of Cravath, Swaine & Moore, who had been advising the GM board for many years. Bob was a good friend; we had labored together in the political vineyard as ardent Democrats. He was also a terrific lawyer and counselor who conveyed gravitas and judgment. "The board is pretty upset," Bob reported. "They feel that you've taken away their most important responsibility," by which he meant the hiring and firing of the CEO. There was talk of a mass resignation, Bob said. "I think it would mean a lot if you would be willing to get on the phone with them tonight," he suggested.

  By the time I joined the conference call that evening, the GM board members weren't as enraged as I'd feared. Still, I was glad not to be with them in person. There were a number of hostile questions, particularly from some of the longest-serving directors who had been most complicit in GM's decay. I explained that in bringing our decision about Rick to him first, I was trying—perhaps erroneously—to give him the dignity of presenting his departure to the board himself, in whatever context he chose. After about a half hour, the questions petered out and the board excused me to continue its deliberations.

  Later, Bob Joffe called to say that my willingness to let the directors vent had been effective in quelling any nascent mutiny. I was relieved. I had been trusted to implement decisions that would normally be executed at much higher levels of the government. A mass resignation on the eve of the President's speech would have been more than an embarrassment; it could have crippled the auto rescue effort and been a particular disaster for me. Fortunately, all of the directors agreed to stay on through the restructuring, and several later told me privately that we had made the right decision.

  I called Fritz the following day to let him know that "interim" would be dropped from his new title. It wasn't until much later, though, that he told me the story of his flight home to Detroit on Friday—a somewhat surreal journey during which he and Rick sat next to each other, one row away from a well-known automotive journalist. They didn't exchange a single word about the day's events. When new CEO and former CEO debarked at the sparkling terminal where Team Auto had arrived just eighteen days earlier, Rick went off silently with his security guard. He and Fritz would never have a conversation about what had transpired; from then on in public, Wagoner maintained an aura of silence and impassivity.

  But behind the scenes, as the initial shock wore off, Wagoner was on an emotional rollercoaster. On Saturday morning, in a fury, he called a lieutenant. "I don't think this is even legal," he fumed. "I am going to go to the board and see what we can do. I'm thinking I should fight this." The next morning he called again, but he was calm. "I need to make it easy on Fritz. I'm not going to fight this," he said. Then, amazingly, he spoke of all the work he still had to get done and how he planned to go to the office at the Renaissance Center on Monday to watch Obama's speech. Colleagues called, pleading with him not to go. Wagoner liked to triangulate advice—it was part of his style as a manager. Once enough people told him not to go to work, he relented. An aide urged instead, "Get in your car with Kathy and drive as far away from Detroit as you can." Wagoner and his wife left almost immediately for their South Carolina vacation home.

  For us the weekend was a blur of paperwork—drafts of the President's address, talking points for outreach calls, fact sheets, and formal responses to the viability plans that GM and Chrysler had submitted on February 17. To forestall errors and misunderstandings, we shared drafts of the responses with the automakers, expecting—and getting—considerable protests about some of our language, especially from Chrysler, because of the flat statement that it was not viable as a standalone company. Many of us, including me, remained uneasy about giving Chrysler a lifeline, and we included in the fact sheet six difficult conditions the company would have to meet to qualify for the additional $6 billion of assistance that we were contemplating.

  Harry, meanwhile, had had a surreal conversation with GM's Ray Young in which Ray tried to negotiate several points in our formal response to GM's viability plan. He was effectively trying to remove or blunt our many criticisms of GM—criticisms that industry observers had been voicing for years. Harry listened patiently for a while, but finally exasperation took over. "Ray," he said, "this isn't a negotiation. These are our firmly held views. Of course you're free to disagree, but we haven't spoken to any industry observer who feels any better about the plan than we do."

  On Sunday night, when we assembled in the Oval Office to hear President Obama make his courtesy calls in advance of Monday's speech, I was more than a little awed by what we had unleashed. My friend Arthur Sulzberger sent the first news flashes to my BlackBerry. I texted back, "I'm sitting in the Oval Office!" feeling the unreality of the moment.

  For the President, of course, it was another evening of work, more momentous than some but less momentous than others he would surely face. And yet it marked a turning point in American industrial history—a turn, I hoped, for the better. After his calls were completed, we fanned out in preassigned groups to other rooms in the West Wing for follow-up work. Deese and I conducted a background briefing call for reporters. More than a hundred members of the media dialed in to listen to a "senior administration official" preview the next day's announcements by the President.

  On the verge of the largest industrial restructuring in history, accompanied by massive government financial support, the first question was "Why did you believe it was necessary to ask Chairman and CEO Wagoner to step aside?" From there, the questions mushroomed across the full range of our actions, but with a disproportionate number still focused on the fate of Rick Wagoner.

  Simultaneously, Larry and Ron spoke with the "auto caucus"—interested members of the Senate and House. When we reconvened afterward in Larry's office to compare notes, he was concerned about what he had heard. "I think we need something more on the demand side," he said. For all of Larry's reputation as an academic, his political instincts were sharp. And his instincts were now telling him that we'd been thinking too much like wonks—obsessively dwelling on financial restructuring and doing too little to promote a broad auto industry recovery.

  We brainstormed how to fix the problem. It was Deese who surfaced the idea of trade-ins for gas guzzlers. The notion of boosting overall sales by offering rebates on trade-ins of old, fuel-inefficient cars had come up during the late-2008 discussions about a stimulus package and again in our early work on autos. A similar program had been a hit in Europe, where the German government had offered the equivalent of a $3,200 rebate for consumers willing to scrap cars at least nine years old and buy newer
ones. But we'd dismissed the idea because such a program would require legislation, which we doubted could be enacted quickly enough and which might also distract Congress from more important parts of the President's agenda. Under tonight's circumstances, however, rebates suddenly seemed like a pretty good idea. "Let's try it," Larry decided. Brian labored through the night to work out a plan and insert new language into the President's speech, thus giving birth to Cash for Clunkers.

  The speech was set for 11 A.M. We assembled in Larry's office shortly beforehand and, following custom, trooped downstairs to the Oval to see if the President had any last-minute questions or requests. Of course, this was unlikely—his speech by now was loaded into the teleprompter and he didn't have to worry about questions from the press because there would be no Q&A. Going to see him was just another manifestation of the White House obsession with racking up face time with the President.

  After a few minutes, we trailed Obama to a staging area in the State Dining Room. Gathered there were members of the Presidential Task Force on the Auto Industry—the secretaries of energy, transportation, labor, and the like, as well as Tim and Larry. They were reporting for duty as what the communications department called potted plants. Often White House image makers don't want the President to make an important, controversial announcement by himself. So they arrange potted plants behind him to convey an added note of gravity and consensus. A protocol officer carefully lined up the officials and, just a few minutes behind schedule, they marched out to the foyer of the White House, where the announcement would take place. Brian, Ron, and I were left standing by ourselves in the State Dining Room; we had not been deemed worthy to serve as potted plants! I didn't care—this was another aspect of Washington that I found unappealing. We made our own way to the foyer and stood behind the camera crews, craning for a glimpse of the President as he delivered his remarks.