The speech was clear and direct. "Let there be no doubt," he said, "it will take an unprecedented effort on all our parts—from the halls of Congress to the boardroom, from the union hall to the factory floor—to see the auto industry through these difficult times." But our groundbreaking rescue plan ended up having to compete with the news of Rick Wagoner's ouster, word of which had leaked to the media on Sunday and was getting more attention than it should have. I was stunned by commentaries suggesting that the government was somehow overreaching by replacing a CEO who had lost $11 billion of taxpayer money in three months—and had been asking for more. No private-sector investor would have put up with that; it was commonplace to make large infusions of new capital contingent upon a management change. Larry professed to be less surprised, while acknowledging that the reaction was stronger than he would have predicted.
Rightly or wrongly, the notion of Washington exerting its grip on an industrial icon was unnerving to many people. Governor Granholm called Rick a "sacrificial lamb." The New York Times published a truly moronic op-ed piece by William Holstein arguing that GM would now be "deprived" of Wagoner's expertise. Happily, several respected commentators praised our decision, notably Paul Ingrassia, a Pulitzer Prize-winning auto expert. His op-ed in the Wall Street Journal was headlined "Wagoner Had to Go: We Heard More Realism from the President Yesterday Than We've Heard from Detroit in Years."
From my standpoint, the controversy over Obama's decision to offer more assistance, contingent on the automakers' meeting strict deadlines, was more expected. Senator Corker, still smoldering over supplier assistance, called it a "major power grab." The Journal's editorial page started referring to GM snarkily as "Obama Motors" and "Government Motors." David Brooks on the Times op-ed page dismissed the deadlines as empty threats and concluded: "It would have been better to keep a distance from GM and prepare the region for a structured bankruptcy process. Instead, Obama leapt in. His intentions were good, but getting out with honor will require a ruthless tenacity that is beyond any living politician." I suspected Brooks had no clue what a "structured bankruptcy" meant. All the same, I was gratified at least that both the Times and the Washington Post praised the President in their editorials.
The single most interesting reaction I heard came not in the media but by telephone. I had barely returned to my office after the President's speech when Jimmy Lee of JPMorgan called. "We need to talk!" he barked.
"I thought there was nothing for us to talk about," I said innocently. "You said '$6.9 billion and not a penny less,' and that's not going to work for us."
"That was then and this is now," he said.
I chuckled silently and continued to play dumb. "What changed?" I asked.
"I didn't realize how important this was to the President," Jimmy said, somewhat fatuously.
I was surprised by how quickly Jimmy had picked up the phone, but not by his shift in attitude. This was precisely what we had hoped to accomplish when we'd urged the President to set a firm deadline for Chrysler, with liquidation to follow unless all the stakeholders agreed that the sacrifice would be shared.
We hunched around a balky speakerphone in the Oval Office, listening in as Barack Obama briefed legislators on his first major action on autos. He'd been President barely two months. That's Larry Summers, chief economic adviser, with the wrinkled brow; I'm at far right. At left is Press Secretary Robert Gibbs; between Summers and me are Brian Deese, standing, and Gene Sperling. Official White House Photo by Pete Souza
© Tribune Media Services, Inc. All rights reserved. Reprinted with permission.
They begged for a bailout but arrived by private jet: from right, GM CEO Rick Wagoner, Chrysler CEO Bob Nardelli, and Ford CEO Alan Mulally, with United Auto Workers chief Ron Gettelfinger, testifying before a Senate committee in November 2008.
AP Images/Evan Vucci
President George W. Bush and Treasury Secretary Hank Paulson smiled outside the Treasury on the October 2008 day Congress passed TARP, the $700 billion financial rescue fund. Tens of billions of those dollars would soon flow to automakers.
AP Images/Charles Dharapak
With GM and Chrysler teetering, the Senate could not muster the votes for a bailout, but Bob Corker, the Republican junior senator from Tennessee, emerged as the unlikely architect of tough guidelines adapted by Bush and later Obama. AP Images/Carlos Osorio
I was intrigued by the dynamic between Summers (left) and Treasury Secretary Tim Geithner, who jointly oversaw our task force. Tim had been Larry's protégé in the Clinton administration, yet their styles were different. Tim was a man of few words, Larry a man of many. Tim was organized and low-key; Larry was more chaotic but his intense interest in autos thrilled us. Stephen Crowley/The New York Times/Redux
A big flap erupted when I was named what the media kept calling the "car czar." Critics asked, what did a financier know about making cars? So I needed a deputy who could balance my Wall Street credentials with credibility in Detroit: Ron Bloom, who had served as chief restructuring officer for the United Steelworkers. (Above, me in a March 2009 TV interview; below, Ron at a Senate hearing in June.) Jay Malin/Bloomberg News/Getty Images; AP Images/Susan Walsh
America's biggest, fastest industrial restructuring depended on Harry Wilson, who quarterbacked the overhaul of GM; Matt Feldman, our resident genius of bankruptcy law (the image is from American Lawyer magazine—the 363 on the tire refers to the section of the bankruptcy code whose application by Matt was groundbreaking); and Brian Deese, who secured for Team Auto a foothold in the White House (that's the entrance to the West Wing behind him) and contributed his policy expertise.
Courtesy of Harry Wilson; Paul Godwin; Stephen Crowley/The New York Times/Redux
Team Auto's whirlwind tour of Detroit on March 9, 2009, included a visit to a Dodge Ram assembly plant. That's Diana Farrell of the task force at right, Ron Bloom (center, right) shaking hands with a Chrysler official, and me (left) fretting that we were running late. Seeing the assembly workers whose jobs were in jeopardy was a sobering reminder of the gravity of our task; I thought of them often in the ensuing months. Marcin Szczepanski/Detroit Free Press/MCT/Landov; AP Images/Carlos Osorio
General Motors world headquarters in Detroit's Renaissance Center, seen from a mostly abandoned warehouse district. As both city and company crumbled, GM's leaders reigned in splendid isolation from a thirty-ninth-floor
General Motors Chairman and CEO Rick Wagoner in his Detroit office on March 19, 2009, three days after our first one-on-one meeting.
Fabrizio Costantini/Bloomberg News/Getty Images
Bob Nardelli, chairman and CEO of Chrysler, on his way to a Senate hearing in December 2008.
AP Images/Kevin Wolf
Ford Motor Company CEO Alan Mulally at an international automotive congress on January 12, 2010, in Detroit. Under his leadership, Ford avoided bankruptcy and didn't need a bailout; he is the only one of the three who still has his job.
Bill Pugliano/Getty Images
The strain of multibillion-dollar negotiations showed on the faces of five men, all very different, who were key players in the crisis: Ray Young, GM's hapless chief financial officer; Fritz Henderson, who after working at GM for his entire career served as CEO for 247 days; Ron Gettelfinger, chief of the United Auto Workers; Sergio Marchionne, Fiat's hot-tempered CEO, designated by Barack Obama as Chrysler's last hope; and Jimmy Lee of JPMorgan, who was obliged on his trips to Washington to forgo the corporate jet and ride the Acela.
Above: Jeff Kowalsky/Bloomberg News/Getty Images; Fabrizio Costantini/The New York Times
Opposite: Bill Pugliano/Getty Images; Reuters/Johannes Eisele/Landov; courtesy of James B. Lee Jr.
By permission of Michael Ramirez and Creators Syndicate, Inc.
David Horsey/SeattlePI.com
On June 1, 2009, President Obama announced the ultimate overhaul: the Treasury was forcing General Motors into bankruptcy, and when it emerged, the company would be 61 percent taxpayer-owned wi
th a chairman and four new board members selected by the U.S. government. To keep car buyers from fleeing, the President established government-backed warranties, and his Cash for Clunkers program was aimed at spurring demand. Meanwhile, editorial cartoonists needed no further encouragement.
Brendan Smialowski/Bloomberg via Getty Images; AP Images/Mark Lennihan
Chrysler lowered the boom on inefficient dealers in June, canceling franchises and ordering dealers to take down their Dodge and Chrysler signs. Some 800 of the company's 3,200 "stores" were closed.
Reuters/Joshua Lott/Landov
Ed Whitacre (top), the flinty Texan I coaxed out of retirement to become chairman of the new General Motors, evoked memories of Lee Iacocca by going on TV as the company pitchman. Soon after this commercial ran, the board pushed out Fritz Henderson and Ed took over as CEO. I was disappointed in summer 2010 when he left after nine months in the job. But his successor, Dan Akerson, another Team Auto recruit, also embodies the no-nonsense, disciplined approach GM needs to survive and even thrive.
Courtesy of General Motors
When our work was completed, I took Team Auto and friends to a Mexican restaurant for margaritas and farewells. From left: Matt Feldman, Brian Stern, Meg Reilly (Treasury spokesperson), Paul Nathanson, me, Ron Bloom, Mara McNeill (Treasury attorney), Brian Deese, Dustin Mondell (Rothschild banker), Clay Calhoon, Lindsay Simmons (Treasury attorney), Harry Wilson, Sadiq Malik, Sally Wrennall-Montes (Treasury assistant), Rob Fraser, Haley Stevens, David Markowitz, and Brian Osias. Courtesy of Paul Nathanson
8. JIMMY TURNS BRIGHT RED
WHILE OBAMA'S SPEECH cut off Jimmy Lee at the knees, it emboldened Sergio Marchionne. His company, after all, had just been designated by the President of the United States as Chrysler's last and only hope for survival—which gave Sergio the kind of negotiating advantage that most dealmakers can only dream of. The very next afternoon, the Italian-Canadian CEO stood before the assembled leaders of Chrysler, the UAW, and Team Auto in a Treasury conference room and told us, "This is a totally new ballgame."
His investment banker, Andrew Horrocks of UBS, proceeded to read a list of demands—"opportunities," he called them—for saving money, mainly from Chrysler's contract with the UAW. You could feel the tension in the room ratchet up. To comply with the TARP loan requirements, Chrysler and the UAW had already spent a lot of time negotiating a so-called all-in compensation rate to bring UAW-Chrysler workers in line with workers at the Asian transplants. What was more, Fiat had already agreed to many of the terms.
But now Sergio and his team, after taking a closer look at the deal, decided "there is some air in it." They thought Chrysler's and the UAW's assumptions about future sales were overoptimistic. Fiat also suspected that Chrysler's labor negotiators had grown too cozy with their UAW counterparts—Chrysler's president, Tom LaSorda, and its other chief negotiator, Al Iacobelli, both had union members in their families. Eventually, Sergio would demand that one of his Fiat executives sit in on all labor talks, "to be his eyes and ears." So now Fiat wanted more concessions, such as a variable wage rate that would tie compensation to productivity gains—an idea that the UAW had always detested.
I watched Ron Gettelfinger's face flush and the muscles in his jaw tighten as he realized Sergio wanted to recut the entire deal. Finally he spoke up.
"You people," he said, his voice rising, "are the people with two houses. And we're common people, we're average people. We're just trying to make a living, and too much is being asked of us." He was angry at the task force, angry at Chrysler, and especially angry at Fiat. Pointing at Sergio, Gettelfinger said coldly, "We had an agreement."
The mood of the meeting lifted just once. As the group reviewed the Chrysler-Fiat alliance, we came to the provision that Chrysler would build and market Fiat's popular minicar, the 500, in America. A participant turned to General Holiefield, a massively built man who was chief of the UAW's Chrysler unit, and asked, "Can you fit inside that, General?" The room erupted in laughter.
I watched to see how Ron Bloom, with his long experience in labor negotiations, was reacting to all this; he was attentive and seemed surprisingly unperturbed. Afterward he told me to think of most of what happened that day as posturing—now that it was behind us, the real horse-trading could start.
Fiat and the UAW were now mainly Ron's responsibility. He and Harry and I had divvied up the mountain of work that Team Auto would have to complete in order to meet the President's conditions and deadlines. Harry got General Motors. He was to spend most of April in Detroit, working with executives and squads of consultants to hammer out a turnaround plan—a realistic one, this time, that wouldn't waste taxpayer money. Meanwhile, Ron and I would concentrate on Chrysler, which had to be brought to terms or liquidated by May 1. While Ron took the lead on Fiat and the UAW, my job, besides monitoring everyone's progress, would be dealing with Chrysler's banks and the finance companies of Chrysler and GM. I also needed to recruit two new chairmen and a slew of new directors for both companies.
I entered the byzantine world of the fincos the very next day, April Fool's Day, as it happened. We faced off in a Treasury Department conference room against an imposing lineup of businesspeople: the top management from Chrysler Financial, GMAC, and Chrysler, plus Steve Feinberg and the guys from Cerberus. They all knew more about automotive finance than we did. We were trying to fly solo without having taken flying lessons, I thought, and I hoped we wouldn't crash and burn.
Pretty quickly I discovered that the fincos posed a bigger problem than I'd imagined. Auto finance companies are a lot like banks, but there is one crucial distinction: Banks rely on deposits from consumers and businesses for most of the money they use for loans. Finance companies have no such depositors unless they happen to own a bank; instead they must depend on large borrowings from banks and investors for the cash that they lend to car buyers (known as the retail trade) and auto dealers (known as wholesale or floor-plan borrowers).
I began to understand how the collapse of the financial markets had created havoc for automakers. As a result of the credit crunch, both GMAC and Chrysler Financial had seen their ability to borrow from banks severely curtailed. To raise added funds in recent years, the fincos had also made heavy use of securitizations, in which their loans to consumers and dealers were bundled, sliced up like a layer cake, and sold off in tranches, typically to investment funds. This market, too, had imploded in 2008, cutting off another key source of funds. As a result of all this, the fincos had drastically reduced lending to consumers and dealers, a major factor in the steep falloff of car sales.
GMAC was much larger than Chrysler Financial—$155 billion in assets versus $22 billion—and its problems were greater. In its glory days, armed with a strong credit rating, it had fallen into the same bad habits as other elite financial outfits, such as GE Capital and AIG. Like an occasional smoker who gradually acquires a three-pack-a-day habit, GMAC began to abuse its cheap capital, branching out aggressively into other kinds of lending—in particular, residential real estate at the height of the housing bubble.
For a while this led to McMansion-size profits for GMAC's residential capital unit, ResCap, but by the end of 2007 it was gushing red ink. GMAC had already lost its investment-grade rating and now had to pour in billions to keep ResCap afloat, weakening its ability to make car loans.
Things only got worse. By autumn 2008 GMAC's own survival was in doubt, and it came running to Washington for help. Initial relief took the form of GMAC's being granted 'bank holding company' status by the Federal Reserve. This unorthodox move made the big lender eligible for the same sort of emergency support that Goldman Sachs and Morgan Stanley received when they became bank holding companies. It also paved the way for an injection of $5 billion of TARP money. Further, GMAC hoped for access to other support programs, particularly those administered by the Federal Deposit Insurance Corporation.
But the FDIC had wanted no part of the huge auto lender. An independent agency that, like the
Federal Reserve, is not under the direct control of any branch of government, the FDIC was established during the Depression chiefly to insure consumers' savings accounts and put an end to 1930s-style bank runs, which it had done. Then came the current crisis, which saw the Bush administration turning to the FDIC for help. In response, the FDIC offered something called the Temporary Liquidity Guarantee Program. I had read about the TLGP but had no idea what it did. I learned that, in return for a fee, it enabled cash-strapped banks to sell bonds and commercial paper backed by an FDIC guarantee, allowing the banks to raise fresh capital at exceptionally low rates.
It wasn't hard to see why the FDIC and GMAC were at loggerheads. The FDIC had thousands and thousands of conservatively financed community banks as its members and looked with distaste on the gargantuan, messy octopus of GMAC. If it extended loan guarantees to GMAC and then the finance company collapsed, the FDIC could well be on the hook for billions of dollars of debt. In addition, even before becoming a bank holding company, GMAC had made itself a pariah in the industry as the owner of a small, fast-growing online bank, now known as Ally Bank, which had been using the Internet to aggressively market certificates of deposit with high interest rates. The FDIC's members hated this competition. The FDIC sympathetically took the view that the high interest rates offered by online banks (there were others besides Ally) jeopardized the bricks-and-mortar banking system by squeezing profit margins. It had stepped in to limit the total deposits that Ally Bank could accept—a stricture from which GMAC now sought relief.
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