Fed Spin-they will soon pass away in the real world.
Inside the Chrysler, GM rescues
The White House auto task force, "shocked" by the depth of the financial problems at General Motors and Chrysler, very nearly let Chrysler go under before President Barack Obama decided the economy couldn't afford to lose another 300,000 jobs.
In a Detroit News interview and a first-person account published today in Fortune magazine, Obama's former top auto adviser, Steven Rattner, details his five months overseeing the automakers' bankruptcies and the decision to extend them a $62 billion federal bailout.
Rattner paints a picture of "stunningly poor management" at both companies, saying in his Fortune piece that they were "in a state of denial."
"We were shocked, even beyond our low expectations, by the poor state of both GM and Chrysler," he wrote.
Rattner's interview with The News, and his Fortune essay, reveal for the first time why the administration ultimately decided to rescue Chrysler
-- and how close it came to collapse.
Chrysler and the United Auto Workers declined comment on Rattner's observations.
GM didn't directly address Rattner's assessment. "Looking back doesn't help us with the important work we have in front of us," GM said. "We are grateful for the second chance our nation's support has given us, and we are confident we will succeed."
Rattner tells a dramatic back story of Chrysler's near-death experience. Daimler AG, which bought Auburn Hills-based Chrysler in 1998, had "badly run" it, he wrote, as did its successor, Cerberus Capital Management LP.
Rattner described Chrysler as "larded up with debt" and "hollowed out by years of mismanagement." It "never had a chance" under Cerberus.
"The hardest decision we made was what to do about Chrysler," Rattner told The News.
In mid-March, he recalled, key members of the auto task force met in the office of National Economic Council Director Larry Summers and split 4-4 on whether to save Chrysler.
Rattner said the auto task force didn't want to keep Chrysler on life support if it was destined to die anyway.
About 10 days later, on March 26, the auto team convened in the Oval Office to decide Chrysler's fate. "As we went back and forth over Chrysler, the president himself seemed as torn as (Summers) and I had been," Rattner wrote.
In the end, Obama agreed to support additional government aid if Chrysler could tie up with Italy's Fiat SpA. He was convinced largely by the impact of job losses and the massive costs that would have resulted from a Chrysler liquidation -- up to 300,000 jobs, including suppliers, dealers and others.
Rattner wrote in Fortune that Obama's advisers also "recognized the severe economic and political consequences of a Chrysler shutdown across broad swaths of the industrial Midwest."
Opponents, led by Austan Goolsbee, a member of the Council of Economic Advisers, argued that Chrysler's collapse would have benefits: reducing excess capacity, strengthening GM and Ford, and shrinking the amount of government money needed to save GM.
"As a University of Chicago laboratory experiment, (Goolsbee) may well have been right. But we were dealing with people's lives, not mice," Rattner told The News. "None of us were brave enough ... We just said to ourselves, 'That's 300,000 jobs in one day, when you have an alternative that's not stupid.' "
Obama reached a decision during a second meeting that day with his economic team, Rattner recounted in Fortune. "I've decided. I'm prepared to support Chrysler if we can get the Fiat alliance done on terms that make sense to us," the president concluded. GM schism cited at RenCen
At GM, members of the auto task force discovered an insulated cadre of executives, and "perhaps the weakest finance operation any of us had ever seen in a major company," Rattner wrote.
GM sent the government PowerPoint presentations almost daily, seeking approval to spend $100 million. But the task force was "appalled by the absence of sound analysis to justify these expenditures," Rattner wrote.
Senior GM executives worked on the top floor of Detroit's Renaissance Center, behind locked and guarded glass doors. The execs had special cards "that allowed them to descend to their private garage without stopping ... No mixing with the drones."
GM Chairman and CEO Rick Wagoner set a tone at GM of "friendly arrogance."
"Rick and his team seemed to believe that virtually all of their problems could be laid at the feet of some combination of the financial crisis, oil prices, the yen-dollar exchange rate and the UAW," Rattner wrote.
It soon became clear to the task force that GM's management had to change.
"It seemed completely obvious to us that any management team that had burned through $21 billion of cash in a year and another $13 billion in the first quarter of 2009 could not be allowed to continue," wrote Rattner, a former Wall Street financier who has returned to private life.
In mid-March, Wagoner offered to resign -- an offer he had also made to the Bush administration if necessary to win emergency loans. Rattner initially rejected the offer, but asked Wagoner to step aside March 27, before a regular board meeting.
Wagoner, he wrote, was impassive, but then asked: "Are you going to fire (UAW President) Ron Gettelfinger, too?"
"I'm not in charge of firing Ron Gettelfinger," Rattner replied.
Wagoner declined to comment through a spokesman Tuesday.
The GM board's reaction to Wagoner's firing was "violent, including veiled suggestions of mass resignations," according to Rattner.
"The directors felt that one of their most important responsibilities -- hiring and firing the CEO -- had been usurped by the government without any warning or consultation," he wrote.
GM's board wasn't up to the job, Rattner believed.
"If ever a board of directors needed shuffling, it was GM's, which had been utterly docile in the face of mounting evidence of looming disaster."
The government, which took a 61 percent equity stake in GM to forgive the bulk of its loans, replaced most of GM's board after it exited bankruptcy July 10.
Rattner said Fritz Henderson, who was chief financial officer, was the only internal candidate considered to replace Wagoner.
"We just didn't feel that at that moment, with everything going on, that we had the luxury of spending six months trying to find someone while restructuring the company, while it was in bankruptcy," Rattner told The News. Henderson showed "promise."
GM dumped its Pontiac, Saturn and Hummer brands, and the task force suggested even deeper brand cuts, Rattner said.
But Buick and GMC were "saved by Fritz Henderson's passionate belief in Buick's China appeal and GMC's reputation for ruggedness," he wrote.
Looking back, Rattner said the task force was successful -- in part because it didn't need congressional approval. But the final verdict isn't in.
"People are going to have to be patient."