Overhaul

  All three had been in the main conference room at Ford headquarters a month earlier, the day President Obama briefed the nation about his decisions on Chrysler and GM. The Thunderbird Room, as it was called, was adorned with eight clocks, showing the time at Ford installations around the world, and black-and-white photos of the Model T and Henry Ford. Mulally had turned it into Crisis Central as he and his team grappled with the present dramatic downturn.

  Like GM and Chrysler, Ford had been fighting a losing battle for more than thirty years to maintain consumer confidence and auto sales. Despite the boom in SUVs, it had spent many recent years bleeding cash while shedding jobs and plants. Yet because of its bold decision in December 2006 to raise $23.5 billion by hocking everything it owned, the company that had long trailed GM now found itself just enough better off not to be in the throes of an impending bankruptcy.

  All the same, the deepening recession was brutal. Ford, like GM, was saddled with too many dealers, uncompetitive labor rates, and a dependency on gas-guzzling trucks and SUVs. Ford had burned through nearly $21 billion in 2008. In January 2009, after reporting a $5.9 billion fourth-quarter loss, it drew down its remaining $10.1 billion line of credit. It had a quarterly cash drain of about $5.5 billion, and if business didn't pick up within a year, Chapter 11 would threaten it too. Meanwhile, its giant finance arm, Ford Motor Credit, was paying sky-high interest rates for the capital it needed.

  Before the crisis, the Thunderbird Room had been the site of once-a-week meetings in which the top two dozen Ford executives around the world—from marketing to product development to Ford Credit to human resources—would deliver rapid-fire reports on their operations. Now the meetings were happening every day, sometimes twice a day, and often on Saturdays and Sundays too, as the executives confronted the effects of collapsing sales and the question of what would happen to Ford if its Detroit rivals went down in a heap.

  Mulally was a relative newcomer. A former Boeing executive who'd lost the race to become CEO, he was a Kansas native who sprinkled his speech with expressions like "neat" and "gosh." That Boy Scout demeanor concealed a fierce drive to win. Bill Ford Jr. had given him the reins in September 2006 when the forty-nine-year-old scion decided he wasn't the right guy to ruthlessly pare down and fix his great-grandfather's century-old business. The massive borrowing initiative was already under way; Mulally encouraged Ford, who remained as chairman, to raise even more. At the time, the received wisdom on Wall Street and in auto circles was that Ford's fundraising was an act of desperation, necessary because Ford was so far behind GM in product development and modernization.

  The new CEO's second boost to the company was working with Bill Ford to sell off Land Rover, Aston Martin, and Jaguar, high-end brands the company had acquired. They'd been meant to become the centerpiece of Ford's growth strategy, but instead they had cost billions of dollars, in one fix-it attempt after another, and were a constant distraction for management. Ford pursued a dual strategy in response to the bailout. In the press and congressional hearings, it applauded Washington's efforts to help GM and Chrysler. Mulally had gone to Washington in November and December 2008 to support his rivals and to underscore the need for a healthy U.S. auto industry.

  The second part of the strategy was more private and less benevolent. Ford did everything it could, in its business operations and its lobbying, to ensure that it would not be hurt by the rescues. "Disadvantaged" became the watchword—as in "we should not be disadvantaged by what the government does to help GM and Chrysler."

  This aspect of the strategy was tricky, because Ford in essence wanted the benefits and advantages that GM and Chrysler were poised to get, namely a cleaner balance sheet, lower labor costs, and access to cheap money from the Fed. But it didn't want the negatives, like the executive-compensation restrictions, the elimination of the Ford family's super-voting stock that allowed them to control the company, or the stigma that came with taking taxpayer money. And of course it didn't want to consider, or even let anyone think it would entertain, a Chapter 11 bankruptcy filing.

  Senior executives like Booth and Brown closely tracked what the government did to aid GM and Chrysler. They monitored press re-leases, statements, Chrysler and GM submissions, and news stories about the task force. They watched how developments at the two automakers compared with Ford's own efforts. Special attention was paid on five fronts: labor, dealers, suppliers, debt, and credit. Ford's status vis-à-vis its Detroit rivals was a regular and frequent topic in the Thunderbird Room.

  Mulally interrupted this particular meeting—now four hours in—for Obama's speech. The President's image came up on the oversize screen, and the executives around the large circular table listened as he delivered his restructure-or-liquidate ultimatum to Chrysler and GM. Some, like Ojakli, wondered whether government-backed warranties would be enough to keep customers buying. When Obama finished, Mulally flipped off the TV and said, "This is our time to be humble and focused. We need to show that what we are doing here works."

  So Ford moved aggressively to keep pace with the forced restructurings. In April it reduced its debt by $9.9 billion by offering a mix of cash and common stock, one of the largest debt exchanges in corporate history. It won relief from the UAW akin to what GM and Chrysler achieved (although the rank-and-file members voted down the new Ford contract in the fall of 2009.) It cut hundreds of dealers. To Ford's giant purchasing arm, which spent about $65 billion annually for everything from steel to seats to floor mats, Obama's speech had already brought relief it could not have secured by itself. By Ford's estimate, some 70 percent of its suppliers also did business with Chrysler, GM, or another big automaker. A free-fall, Lehmanlike collapse by a major rival could take down a supplier and shut down Ford as well; to protect itself as best it could against that eventuality, Ford had reserved hundreds of millions of dollars for supplier support. Obama, with his implicit promise that the White House would not let GM and Chrysler collapse, enabled Ford to free those reserves and apply them to other headaches.

  My own sense, watching these executives operate, was that Ron Gettelfinger had been right. Months before, asked by a congressman to rank the automakers' leadership, he'd testified under oath that Ford's was the best management in Detroit.

  By late April, Harry had the rudiments of an operating plan for GM. It dramatically accelerated and magnified the restructuring the company had originally proposed. Pontiac, Saturn, Saab, and Hummer would be eliminated almost immediately. By concentrating GM's focus, the number of new launches and "refreshes" of existing models could be increased from thirty-nine to forty-four over the coming five years. There would be five hundred fewer dealers four years earlier than in the previous plan. Plant closures would be accelerated by six to twenty-four months. A further 8,000 hourly workers and 1,250 white-collar executives would go. All told, the restructuring was expected to reduce North American operating costs by $8 billion a year. And while GM had been comfortable with a plan that allowed the company to break even at U.S. sales figures of 11.5 to 12 million a year, Harry was prepared to fight to cut costs until GM could break even in a 10-million-sales environment, still slightly higher than the depressed levels of early 2009.

  The plan was far from ready for public consumption when, on Friday, April 24, Harry got a late-afternoon call from an anxious Walter Borst, the treasurer of GM, and a half-dozen members of his team. "We need your signoff," Borst said. They were racing to file the bond exchange offer, and they seemed to think they had to include the restructuring plan. We'd long since taken for granted that GM would need a trip through bankruptcy court, and most of GM's leaders understood that too. Knowing that the exchange offer was doomed to fail, we had ignored this bit of Kabuki theater up to now. But the GM finance people persisted in going through the motions, attending to the minutiae of regulations requiring any major change in plans to be included in the prospectus.

  Harry, as it happened, was taking a rare break. He had gotten home to New York early and was playing in
the back yard with his kids. He also had discovered, after many rounds of questioning, that the company had the option to delay including the details of the restructuring plan for up to two weeks. So he was in no mood for GM silliness.

  "Guys, what do we think the probability of this deal happening is?" he asked, referring to the bond exchange. No one around the speakerphone at GM would give an answer.

  "Give me a number," Harry persisted. "Is it less than 50 percent? Less than 10 percent?" Still no answer. He found it incredible that the company was consuming so much time and energy on a plan and no one would hazard a guess as to whether there was any chance it would ever be used! In Harry's mind, this was the exact problem with General Motors—large numbers of people running hard toward a goal of limited or nonexistent value and thus distracting from the really important priorities of the business. "I will give you a number. I think less than 5 percent. And so because we have a massive amount of work to do for a bankruptcy filing that is highly likely in the next several weeks, and I think this has an extremely low probability of happening, I cannot spend several hours going through comments on a prospectus that won't do anything to help this company."

  Larry had pushed us from the start to play down Team Auto's role and keep the emphasis on GM and Chrysler managing their own affairs. That ended up being partly true of GM, in the sense that Harry and his team tried to set parameters and assumptions for its executives in the hope that they could then produce the specifics of a restructuring plan. In reality, the talent and determination of Harry, David, and Sadiq were what really drove the process. As we drafted press statements and fact sheets, I would constantly force myself to write that "GM" had done such and such. Just once I would have liked to write "we" instead.

  11. EPIC BANKRUPTCY

  "THIS TIMELINE is impossibly aggressive. It's never been done before," Harvey Miller, the seventy-six-year-old senior statesman of bankruptcy attorneys, told Harry Wilson.

  "Well, we don't have a choice," Harry countered, thinking of the President's deadline. "We can get it all done."

  At 9 A.M. on the day after President Obama announced that we had put Chrysler into bankruptcy, more than three dozen well-dressed lawyers, bankers, and GM officials gathered in a conference room on the fifteenth floor of the General Motors building in New York. Dozens more had dialed in by speakerphone.

  For the men and women present who had made bankruptcy their careers, General Motors was shaping up as the Big Show, the most massive industrial bankruptcy in history. The filing deadline was June 1, just a month away, and even veterans like Miller were intimidated. Privately, he had approached Matt and Harry a few days before with his concerns that GM's management was still in denial about the prospects of a bankruptcy filing and wasn't working hard enough to prepare.

  Harry, chronically sleep-deprived, had a fierce adrenaline rush from the pressure. GM sought to open the meeting with a 150-page document. "What's this?" Harry asked. "The agenda," came back the reply. Harry, almost laughing, said, "You can't run a meeting with a 150-page agenda!" and moved on to the list that he and Matt had compiled.

  He had before him an eight-page spreadsheet of several dozen topics that needed to be addressed in the bankruptcy—everything from GM's more than 500,000 supplier contracts to its relations with sovereign governments around the world. He had assigned responsibility for each item to individuals from the government group and GM. Next to those names, he had columns for next steps, deliverables, and due dates. In deference to GM, Harry started the meeting by framing bankruptcy as the fallback plan—GM officially still held out hope that it would find enough takers for its bond exchange offer to avoid Chapter 11. But no one else in the room saw that as a serious possibility, and by this point, privately, neither did Fritz nor most other top GMers. Then Harry dove in and began working through the list, item by item, to be sure everyone knew what would be expected.

  Next to him was Matt Feldman, our stalwart bankruptcy sage. Minutes after the Chrysler petition was filed the previous day, Harry had gone to him and said, "Feldman, now you're mine." Though exhausted, Matt had dragged himself to New York for this all-day meeting.

  The bankruptcy plan Matt envisioned for GM was an outsize version of the one he'd designed for Chrysler. With the help of many billions of taxpayer dollars, GM would separate its assets into two companies. "Old GM" would retain the factories, equipment, brands, and real estate that the business no longer needed. Its sole purpose would be to dispose of these assets, using the proceeds to repay the creditors that the other company, Shiny New GM, had left behind. The new company would own all the assets GM did want to keep. Free of crippling costs and debts, this new business would go forth as a streamlined, revitalized competitor on the world automotive scene. We meant it to be not only viable but also highly profitable.

  The meeting ended at 6 P.M., having stretched nine hours. Even though it was Friday night, Harry didn't stop; he had booked a session with Carl Icahn, the legendary corporate raider and multibillionaire, who had lately expressed interest in acquiring a stake in Delphi. Icahn's offices were a couple of elevator rides away, on the forty-seventh floor. Matt dutifully accompanied Harry on the short journey, but was soon called back to Connecticut over a family matter. He was not sorry.

  Harry, who liked to have an aide-de-camp by his side, summoned Sadiq Malik to Icahn's office as soon as Matt left. The meeting, while not producing any meaningful progress, lasted until after midnight, nearly killing the young analyst, who was too scared of Harry to take a bathroom break.

  ***

  Neither Ron Bloom nor I attended that kickoff meeting in New York. My modus operandi has always been to delegate to younger colleagues whatever they can handle, and I felt comfortable with Harry's ability to manage the situation. Ron, however, having ushered Chrysler toward resolution, was eager to turn to GM. This marked the start of the only serious interpersonal conflict at Team Auto. Although Harry and Ron certainly had ideological differences, the friction between them was more a matter of style than substance. Both were take-charge guys. Harry saw GM as his baby; Ron, seventeen years older and officially the auto task force's deputy, viewed himself as senior to Harry.

  The tension flared in Washington the next week. Ron went to Harry and said, "Let's sit down and divide up how the GM work is going to get done."

  "Why do we need to divide it up?" Harry asked. "It seems to be working fine."

  "Well, you've got some expertise, I've got some expertise, why don't we sit down and talk about it?" They walked down the long basement hallway to the Treasury cafeteria to chat.

  "If you think I'm doing something wrong or something's not working well, let's talk about that," Harry said as they found a table. "But if all you want to do is take ownership of a process that's going really well, I don't think that makes any sense."

  Ron repeated his thought about different skills.

  "Tell me what your different skills are," Harry countered.

  "I've done this before."

  "I've done this a lot before as well. But if you think I am doing anything wrong, I'd be happy to address it."

  Harry was not the only Team Auto member to feel some discomfort about Ron. After working shoulder to shoulder with him on Chrysler, Matt considered him too often dictatorial. Harry, having watched that interaction, was concerned that the same difficult dynamic could develop with GM. He also had a strong view that deal terms worked best when there was a clear leader with accountability. Nonetheless, Harry recognized that there was an enormous amount of work to do on GM and indicated that he was open to carving off pieces of the project. They agreed that Ron would spearhead our dealmaking abroad, particularly with the governments of Canada and Germany.

  But when Ron said he also wanted to take over the talks with representatives of GM's major bondholders, the conversation got hot.

  "Frankly, Ron, I think I've done more bondholder negotiations than you have," Harry was saying. "But also, I have to say, these guys don't like y
ou."

  "What do you mean?"

  "They think you totally sold out to the unions. They don't trust you. They don't think you can be an honest broker. Whether that's true or not, that's what they think." This set Ron back. He reflected for a minute, concluding that he did not want to risk putting his ego ahead of the salvation of GM. "Okay. Let's set that aside and talk about the UAW."

  Harry welcomed Ron's involvement on that front. He believed, as we all did, that Ron's knowledge of labor issues and his credibility with Gettelfinger were invaluable. But Harry insisted on playing an equal role. As long as Ron didn't treat him as a subordinate, he said, they could team up on the UAW talks.

  The confrontation seemed to settle the differences between Harry and Ron, but after returning to our work area, Harry quietly issued orders that every GM-related e-mail to Ron must also be copied to him to make sure he stayed in the loop.

  As Harry and his team crunched numbers for GM's financial restructuring over the next few days, they discovered a large flaw in our plan. In overhauling Chrysler, we had "invested" the $8 billion of new taxpayer money almost entirely as debt on the new company's balance sheet. We'd assumed we would do the same with GM. But GM, they realized, was going to require far more new money than Chrysler, even allowing for the automakers' difference in size. Harry's preliminary estimates showed that Shiny New GM would need at least $30 billion, on top of the $15.4 billion the Treasury had already put in. Yet that much new debt would leave the company groaning under a potentially unmanageable load of fixed liabilities—much like old GM. Harry couldn't find a way out of this.