Overhaul

  But this meant that Rick Wagoner was owed $7.1 million. Larry's first instinct was that Rick should get little or nothing, given that GM had gone broke on his watch. "Do you know what a senator gets for his pension?" he asked me, implying that no public servant would understand why Rick should get millions. I felt bad for Rick; he certainly had failings as a CEO, but he had put his heart into the job and believed in GM so strongly that he had never cashed out any of his stock. I argued that Wagoner should be treated no better or worse than the other retired executives. In the end, Larry agreed.

  Larry generally kept Rahm and the President informed of potential flashpoints in Team Auto's work, but he blocked out time during the President's Daily Brief on Friday, May 29, for a last-minute review. Three days hence, on June 1, the President would announce that the federal government was putting General Motors into Chapter 11. Larry didn't want to take the chance there'd be a political surprise.

  Unlike the first time Larry had dragged me to the Oval Office, I arrived at the White House knowing we were scheduled to meet with the President. I also had been told to expect cameras—NBC was on the premises shooting a special called A Day in the Life of Obama's White House. As I approached the West Wing entrance, I could see a video crew taping the arrivals. Making my way to Larry's office, I encountered camera crew after camera crew crowding the tight confines of the West Wing. (I later learned that thirty-two cameras were prowling the White House that day.)

  We headed downstairs to the Oval, where we stood waiting by Katie Johnson's desk. Promptly at 10 A.M., the door opened, Hillary Clinton emerged, and it was our turn. With NBC in tow, we took our seats on the couches and chairs facing the President. The briefing began with pleasantries and then the President asked Larry to open the discussion without any "market sensitive" information. Larry did his best under the awkward circumstances until, mercifully, Rahm evicted the cameras and we got to work.

  We reviewed for the President the progress on the restructuring: the improved cost structure, the reduction in labor costs, the additional $30.1 billion that we proposed to inject. He was familiar with all these items, and I moved through them briskly, saving the most worrisome for last.

  While a majority of GM's bondholders had accepted our final proposal, we expected dissidents to fight us in court, just as the Chrysler lenders had done. In this case, there was a chance they would renew their campaign portraying GM and the administration as callous toward small investors.

  Next we discussed the UAW's latest public stance. Rather than use the bankruptcy to focus on job cuts (polls showed many Americans thought UAW workers were overpaid), the union was highlighting the fact that GM, like many manufacturers, had been gradually moving production out of the United States to countries with lower labor costs. The union was complaining that the restructuring would transfer more production to Mexico and Asia.

  This was technically true, we told President Obama. However, the production was coming from Canada, not the United States, and the move had been set before the restructuring agreements. We explained the vitality commitments and other arrangements now in place to protect jobs in both countries henceforth.

  Larry and Diana outlined the "USG as Shareholder" policy, which would be unveiled in fact sheets accompanying the President's speech. We also had an unspoken understanding that, following an initial public offering by Shiny New GM, the government would sell at least 5 percent of its shares each year and be completely divested within eight years. This had been heavily litigated between Team Auto and Larry. Harry and I hated the idea of committing to stock sales that might not be financially optimal, but Larry had been adamant, and understandably so. The President seemed pleased.

  Finally, we came to executive compensation. I briefly sketched the background, trying to avoid the mind-numbing complexity of splinter unions and SERPS to get to the item that we wanted to be sure President Obama signed off on: Rick Wagoner's pension. I explained the arrangement that would pay him $7.3 million over five years, and I could see the President's jaw muscles tighten. Suddenly I felt that I was indeed in the presence of a community organizer; the President plainly had difficulty with the notion of writing a check that was about one hundred times the annual income of a GM worker to the CEO who had brought the company down. Obama grimaced and reluctantly acquiesced. I found it striking that the President of the United States had spent more time on an issue of executive pay than on the question of whether to dismiss a major CEO in the first place.

  The cloudy, humid day ended with a scramble. GM, which had been trying to sell Hummer for months, had found a buyer—a Chinese company that none of us had heard of. Deese and I were both a bit unnerved by this, as some purchases of U.S. businesses by companies with headquarters in places like the Middle East and China had become controversial. We immediately decided to take the matter to Tim and Larry, and gathered in Larry's office late that afternoon. His first instinct was to worry. Down at the other end of the table, Tim suddenly interjected, "Guys, if this were a British company, would we be having this conversation?"

  "No," we replied unanimously.

  "Okay, then. End of conversation."

  With that, we scattered for our weekend of work. Deese, who lived in Washington, stayed at his small desk at the White House working on fact sheets and talking points and revisions for the President's speech. Ron drove home to Pittsburgh to spend Saturday and Sunday in marathon calls with German officials, patiently reiterating our position that no more U.S. taxpayer dollars would flow into Opel. Harry, Matt, David, Brian, and Sadiq camped in New York at the law offices of Weil Gotshal, GM's bankruptcy adviser. Harry jetted off on the last flight to Boston on Friday night to spend a few hours at his Harvard reunion before returning on the first flight to New York on Saturday morning. "He just wants to bask in the glory of his big assignment," grumbled a banker who had felt Harry's lash. I hunkered down at my house north of New York City for two days of nonstop e-mails, phone calls, and faxes.

  As we prepared, one small concern was that Tim Geithner was scheduled to be in China on the day of the President's address. To me, this seemed like no big deal—it wasn't as if he were off playing golf—but the communications folks fretted about it. On Saturday afternoon, my cell phone rang. I heard static and then official-sounding voices. Finally, one asked me to hold for Secretary Geithner. I realized that Tim was calling from his plane on his way to Beijing.

  "Is everything okay?" he asked.

  "Fine," I replied. The conversation ended almost as soon as it began. I was puzzled until a day or so later, when I saw in a press report that an "administration official" had said that Tim was in regular contact with the Auto Task Force during his trip. Now I understood. (I would later learn that the ever-attentive press department also had nixed a Ping-Pong match that Tim had been scheduled to play on Monday, the day that the President would be speaking.)

  For Matt, these hours were critical, as he supervised what would be a devilishly convoluted bankruptcy filing. The documents described in intricate detail the two GMs that would be created out of the 290 GM legal entities that existed.

  Left behind as the old GM—shares of which would continue to be traded publicly and whose name would be changed to Motors Liquidation Company to avoid confusing investors—was a company that would be massive in its own right. For example, MLC would own 127 properties, almost all in Michigan and Indiana, with more than forty-eight million square feet of floor space, nearly the size of eight Pentagons. Many of these had been out of service for years, legacies of the era when GM commanded half of the American car industry. We would also leave behind 5,000 assembly-line robots, 200 miles of conveyor belts, even a small golf course. And we were leaving behind liabilities: $27 billion of unsecured debt, hundreds of millions of dollars of environmental liabilities, splinter unions' retiree benefits, and unwanted supplier contracts. Even without any active operations, Motors Liquidation would stay in business until all of the assets had been disposed of and all of the claims
against it resolved, a process that Matt believed could take two to four years.

  Shorn of these extraneous assets, Shiny New GM would emerge to operate the 121 properties that would remain in the U.S. and would employ more than 200,000 workers around the world. The company would be dramatically reconfigured, with $65 billion of liabilities stripped from its balance sheet and its annual structural costs in North America reduced by $8 billion.

  While I would later have a tinge of regret at not having achieved greater concessions from the stakeholders, we had far exceeded the requirements that Bob Corker and the Bush administration had established as part of the initial bailout. Instead of the two-thirds reduction in unsecured debt mandated by the Bush loan agreements, we eliminated all of these obligations. Instead of equitizing half of the GM VEBA, we converted 87.5 percent to stock. And so on. None of this would have been possible without President Obama's determination to do the right thing. While both Tim and Larry had assured me of this in the course of our early discussions, I had gone into my assignment nervous that political pressures would ultimately compromise the outcome. I shouldn't have been. When President Obama told us on March 26 to be tough and commercial, he meant it. Without his standing firm, we surely would have ended up with a far worse result.

  A major concern for us now was making sure GM would not have to seek court protection for any of its subsidiaries around the globe. Our tight timeline for getting through a U.S. bankruptcy was challenging enough; engaging other countries' bankruptcy procedures was sure to slow down, or perhaps doom, our whole effort. We spent hours reviewing the debt of subsidiaries in places like Russia, Colombia, and Thailand to determine whether funding their needs would violate the Washington Post test. Meanwhile, Ron focused on reassuring the Canadians; Matt and Harry on reviewing the legal strategy and documents to guard against last-minute snafus; David on an eleventh-hour brouhaha with a group of hedge funds that had bought bonds issued by GM Nova Scotia; Sadiq on providing numbers and analysis to everyone. Harry's final work frenzy was so intense that when Feldman gathered the team late in the day to make sure all the preparations were on track, Harry dialed into the meeting from the conference room next door—he didn't want to waste the seconds it would take to walk ten feet and exchange pleasantries as the meeting began.

  The closing crunch was particularly unnerving for supporting players who hadn't been through the Chrysler bankruptcy. Just as GM was putting the final touches on its bankruptcy petition, a senior attorney at the Treasury Department, Laurie Schaffer, objected to the whole idea of our forming Shiny New GM. She argued that this would make the new GM an arm—an "instrumentality"—of the federal government, which would mean that the government would be responsible for any GM liability, including any lawsuit brought against it. Matt had reviewed our approach repeatedly with Treasury officials during the month of preparations, and everyone was comfortable that it did not present the "instrumentality" risk. Everyone except Laurie Schaffer, who now suggested that we have the VEBA form the new company. It was a ridiculous idea. Matt tried, not very patiently, to convince her otherwise. When that failed, he called Tim's deputy, Neal Wolin, and got her overruled.

  Sunday afternoon, Ron, Harry, and I returned to Washington, where we rejoined Deese and again gathered that evening in the Oval Office to stand by as President Obama made another set of outreach calls to politicians. Just two months had passed since the first session of calls we had witnessed, when Obama had paused to watch Tiger Woods on TV. By now I had spent more time in the Oval Office than do many officials of far higher rank in the course of an entire administration. I never imagined a presidential meeting could feel so routine. Exhaustion was part of it—everyone on Team Auto felt a little numb after months of doing battle with some of America's biggest economic dragons.

  The next morning, Ron and I took our appointed places as potted plants on the steps in the Grand Foyer of the White House as President Obama announced the reorganization of General Motors. I couldn't see beyond the lights, but I knew that across the large room, somewhere behind the banks of cameras and reporters, was the rest of the team. Witnessing the President talk about our work was one of the few perks we could offer our extraordinarily talented and dedicated colleagues.

  "Our goal," President Obama was saying, "is to get GM back on its feet, take a hands-off approach, and get out quickly." I relished hearing him deliver a few sentences I had helped craft: "Many experts said that a quick, surgical bankruptcy was impossible. They were wrong. Others predicted that Chrysler's decision to enter bankruptcy would lead to an immediate collapse in consumer confidence that would send car sales over a cliff. They were wrong, as well."

  Unbeknownst to me, a small drama was unfolding downstairs. Like everyone on our team in New York, David Markowitz had gotten almost no sleep during the final frenzy of preparation. They'd all come to the White House for this occasion, but as he walked to the Grand Foyer, David felt dizzy and sick. Sadiq tried to steady him, but David could go no further. Hearing of David's dizziness, several White House aides appeared out of their warrens to offer chocolates, presumably to cure a sugar low. David and Sadiq turned back, and someone pointed them to the White House infirmary—two small offices used by the President's physicians. A doctor checked David over, fed him fluids, and asked him to sit and rest. Sadiq was disappointed on David's behalf but didn't want to miss the President's statement, so he hurried back upstairs.

  Twenty minutes later, sitting groggily in his trousers and undershirt, David heard a commotion at the door. In came President Obama, who had just finished his speech and was in search of a couple of Tylenols. Our young Team Auto colleague found himself shaking hands with the man on whose behalf he had been working around the clock for three months.

  12. DEALER NATION

  AS I SAT BLEARY-EYED in my Washington condo on the morning of June 1, the newspaper headlines were jarring reminders that we were playing for historic stakes. "G.M. Heads to Bankruptcy Protection as Government Steps In: Obama Makes a Bet That the Carmaker Can Re-cover," proclaimed the New York Times in a banner spanning the top of the front page. Below was an analysis—a "Q-hed," in Times parlance—that evoked the consequences of the moment: "After Many Stumbles, the Fall of an American Giant."

  Throughout the spring, I had been surprised by the relative quiet that greeted Team Auto's surgery, but suddenly we seemed to have struck a nationwide nerve. GM's announcement that seventeen factories and parts centers would be shuttered by the end of 2011 drew a powerful reaction from Barney Frank, the volatile Massachusetts Democrat who chaired the House Financial Services Committee. GM did not build cars in his state, and the only thing that Frank's district was slated to lose was a parts depot near Boston employing a grand total of about eighty workers. But that didn't stop Frank from blasting a GM lobbyist in a profanity-laced phone call. Fritz Henderson was so unnerved by the congressman's reaction that he visited Frank while in Washington a couple of days later, and took a thrashing in person. By the end of that meeting, he had agreed to delay the closing by fourteen months. I was dismayed; we had consistently tried to avoid politicizing the process by insisting that GM alone should decide which facilities it would keep or close.

  "How did that happen?" I asked Fritz when I tracked him down.

  "I didn't think I had much of a choice when I had the chairman of the House Financial Services Committee yelling at me," he replied.

  The Wall Street Journal quickly weighed in with an editorial, "Barney Frank, Car Czar," darkly predicting that this would be only the beginning of congressional interference. I feared the editorial might be right. But happily, although we fielded many calls from other elected officials, keeping the Massachusetts depot open was the only change that GM was forced to make to its facility-closing plan.

  I was not surprised by reactions such as Barney Frank's to the fate of individual facilities. Although he was way out of bounds to browbeat Fritz over eighty jobs, a large employer like an auto plant can be the lifeblood of
a community, as Rahm Emanuel had recognized back in March when he reeled off the names of the legislators in whose districts the major Chrysler plants were located. I was more surprised at the lack of reaction to the overall magnitude of the job cuts. At the end of 2008, GM employed 90,650 people in the U.S. In the final restructuring plan, that number was projected to be slashed to approximately 63,000. It was no better for Chrysler: from 36,500 down to 30,250.

  To be sure, we had ended up including vitality commitments—promises to maintain U.S. production as part of our investments in both automakers. Even so, the job cuts were draconian, especially in an industry where, as recently as late 2008, laid-off workers received nearly full pay. Now there would be wholesale eliminations without any obligatory payments whatsoever. So where were the protests? Why weren't autoworkers marching in the streets? Perhaps the reason for the relative calm was that the job cuts weren't instantaneous but would be phased in over a number of years. Perhaps it was that the companies were offering buyouts to workers to encourage voluntary departures. Perhaps many of those affected had been stunned into apathy by the economic disasters their communities had already suffered. In the end, I concluded that the most likely explanation was the magnitude of the auto crisis. Workers and those who sympathized with them understood that only through amputation could these companies be saved.

  Car dealers were another story. Even though auto companies don't pay their dealers anything directly, every industry expert agreed that having fewer, more productive dealers results in higher total sales and lower marketing expenses for an automaker than having large numbers of small, inefficient ones. This was fine in theory, until the letters went out identifying specific stores to close. In mid-May, GM notified 1,124 dealers that their franchises would not be renewed. They were offered the chance to be wound down over an eighteen-month period. Scrappy, tough Chrysler waited until it was halfway through bankruptcy to send out terse letters to 789 dealers, instructing them to take down their Chrysler signs by June 9.