Former head of the Presidential Task Force on the Auto Industry, Steve Rattner has penned a retrospective for Fortune on his time guiding the auto industry bailout. He covers everything from how he assembled his team and developed a strategy to the decision to fire Rick Wagoner and the showdown with Chrysler’s creditors. There are no real surprises if you’ve followed TTAC for the last year or so, but it’s fascinating stuff to read coming from the horses mouth. Take Rattner’s initial impressions of the GM “culture thing”:
Everyone knew Detroit’s reputation for insular, slow-moving cultures. Even by that low standard, I was shocked by the stunningly poor management that we found, particularly at GM, where we encountered, among other things, perhaps the weakest finance operation any of us had ever seen in a major company.
For example, under the previous administration’s loan agreements, Treasury was to approve every GM transaction of more than $100 million that was outside of the normal course. From my first day at Treasury, PowerPoint decks would arrive from GM (we quickly concluded that no decision seemed to be made at GM without one) requesting approvals. We were appalled by the absence of sound analysis provided to justify these expenditures.
Rattner also recalls that the Chrysler bailout was far less of a sure thing:
Austan Goolsbee, a fearless former University of Chicago economist who had been with Obama since the beginning of his campaign, led the charge against Chrysler, marshaling strong factual arguments. One was that letting Chrysler go would give a needed boost to GM (and also to Ford), since most buyers of Chrysler’s strongest products — trucks, minivans, and Jeeps — probably would turn instead to the other Detroit automakers.
Harry maintained that a Chrysler liquidation could potentially add billions of dollars a year to GM’s operating income in a normal sales environment, vastly increasing the value of the company.
The group was torn (at one point the vote was four to four) and so were Tim, Larry, and I. We intuited that from a theoretical point of view, the correct decision could well be to let Chrysler go. But this was not an academic exercise…. We did not believe we could underwrite its viability without a strong corporate partner, so we turned our attention to that single possibility, an overture from Fiat.
And, at the risk of reprinting a full quarter of the piece, here’s Rattner’s recollection of canning of Rick Wagoner:
I don’t know whether Rick had any inkling of why I had wanted to see him alone. His face was impassive as I said, “In our last meeting, 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.”
I told him of our intention to make Fritz acting CEO and he supported that idea, cautioning me against bringing in an outsider to run the company. “Alan Mulally called me with questions every day for two weeks after he got to Ford,” he said.
As we continued our rather awkward conversation, Rick suddenly asked, “Are you going to fire Ron Gettelfinger too?” Startled by the reference to the UAW head, I replied, “I’m not in charge of firing Ron Gettelfinger,” and Rick soon left to brief his board on our decision.
Later, I spoke to Fritz, who expressed enthusiasm for his proposed promotion but asked that he not be called “interim” CEO. “You can fire me anytime you want, but at least give me a better chance to succeed,” he said. We agreed.
Read the whole thing. [Hat Tip: 97escort]
The vote to kill Chrysler was at one point tied…
In all of Chrysler’s roller coaster history, that HAS to be the absolute low point, the closest they’ve ever been to death.
I’ve felt all along that getting rid of Chrysler would have helped the other two Detroit manufacturers. It’s really sad that in the end, US taxpayers will have subsidized an Italian corporation. I wonder if this point was brought up about keeping Chrysler alive?
Rattner: “The weakest finance…”
And Wagoner was from Finance, wasn’t he? It’s bad enough to let the Finance gang run the company but to let a bad Finance gang run the company… How insanely bad is that?
Alan probably called Rick to see what he would do in a situation, and then figured the opposite was the best course of action.
Chrysler still has no products and no money. In the long run, bankruptcy remains inevitable.
Thanks to 97escort (??) for the heads up earlier.
These two quotes struck me;
When the Obama administration took office …. it inherited nothing in the auto area: no staff, no stacks of analyses, no plans of any kind. The Bush administration …. shoveled $17.4b …. into the companies …. without any meaningful stab at restructuring them.
and
Rick suddenly asked, “Are you going to fire Ron Gettelfinger too?”
Incompetence and then unconsummated revenge.
Great stuff.
When I studied GM a decade ago they had an insane reliance on Powerpoint. The organization apparently could not comprehend anything too complicated to put in a fairly brief bullet point format.
I’m still surprised that they bailed out Chrysler.
I found one bright spot in the article.
“Buick and GMC were saved by Fritz Henderson’s passionate belief in Buick’s China appeal and GMC’s reputation for ruggedness.”
I disagree with the decision to save GMC while I agree with the Buick decision for just the reason stated but I’m strangely buoyed by the fact that Henderson was able to marshal enough reasons, passionately enough and persuasively enough, that Team Auto kept them.
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.
Um… isn’t Rick’s job to deal with those issues?
As for the UAW….
Appple Computer currently has $30 billion is cash and revenue of ~$40 billion a year. In 2006 GM had revenue of $206 billion. I’m certain that the UAW would never have allowed GM to accumulate $150 billion in cash. That being the case, I don’t see how GM could have survived the crisis.
” … cautioning me against bringing in an outsider to run the company. “Alan Mulally called me with questions every day for two weeks after he got to Ford,” he said.”
Wow such arrogance and stupidity at the same time. Rick ran GM into the dirt. Mulally is doing a credible job of turning Ford around. The funny thing is, a really smart GM CEO would have told Mulally to go learn for himself. But no, Rick’s arrogance blinds him time and time again. So he got suckered into helping his chief competitor get on the ground running a little faster.
What really frosts me is how long the Board of Bystanders stood up for their lame choice of Red Ink Rick.
The whole article is fascinating. He does contradict himself by implication though— he says that politics didn’t enter into any of their decision making, yet Rahm Emmanuel is reciting which congress critters will be pissed of if Chrysler doesn’t get bailed out. Maybe Mr. Gettlefinger wasn’t making political decisions, but somebody was.
The question I’d like to ask Ron Gettelfinger is:
Obviously GM didn’t have enough cash on hand to survive the spike in oil prices and the economic crisis. That being the case, going forward, how much cash will you allow GM to accumulate before you demand higher wages?
The PowerPoint thing is distressingly common. You’ll see executives who are so abstracted from the business work like this: they’re comfortable with one tool, and one tool only, and they’ll reuse that tool (or rather, get their admins to) for every possible task. They’ll actually get angry if you try to suggest any kind of process improvement to them.
Generally, I see Excel used for this, but PowerPoint is a close second. It’s generally an early warning sign of bad management.
I’m also not at all surprised to see how weak GM’s finance structure is. When no one cares and no one is responsible for decades at a time, you’d be surprised exactly how bad things can get, especially in core functions like finance that, in theory, sort of run themselves.
When the Obama administration took office …. it inherited nothing in the auto area: no staff, no stacks of analyses, no plans of any kind. The Bush administration …. shoveled $17.4b …. into the companies …. without any meaningful stab at restructuring them.
This is probably partially true and partially ass-covering by a guy who wants to say that everything’s not his fault nor the current Administration’s fault. Unsurprisingly, the guy who served in Larry Summers’ position under GWB feverently disagrees with this take.
Of course politics played a role with both Administrations, as his narrative makes clear despite his protestations. (And of course if the Bush Administration hadn’t shoveled money at them, the Obama Administration would have had some like Goolsbee in private happy, but in public would have unanimously slammed Bush for letting them fall.)
@PeteMoran
When the Obama administration took office …. it inherited nothing in the auto area: no staff, no stacks of analyses, no plans of any kind. The Bush administration …. shoveled $17.4b …. into the companies …. without any meaningful stab at restructuring them.
Our philosophical differences show here again.
My read on the Bush administrations actions here are as follows:
1. Had the Bush administration continued there would have been no government bailout. Therefore, no need for stacks of analyses, etc. Your belief in the benefits of government running businesses is different than mine.
2. Bush did the right thing for an outgoing administration. Bush pumped in a very small amount of money (yeah, but I’m comparing it to what Obama has put in) to allow the Obama administration the choice to do what it wanted –
had Bush not acted, then the companies would have been gone before the new Obama administration could get organized enough to decide what to do.
Bush simply left the option open, rather than deciding for Obama what should be done.
Now we see that there’ a very good chance that Obama’s money will not be successful in reviving GM, since the core culture that led to failure hasn’t been shaken deeply enough.
I am so tired of hearing the “it’s huge in China” rationale for saving the most damaged, irrelevant US car brand outside of Mercury; Buick. Applying this same reasoning down under, Holden must immediately be renamed Buick.
In fact, when it comes to GM I’m just plain tired.
Didn’t Rattner spend time at some Union stooge think-tank, or something similar?
The “hide the baloney” game has started in an attempt to pass the buck to someone else.
Had the Bush administration continued there would have been no government bailout.
Since that clearly wasn’t going to happen, that isn’t relevant.
And we can see from AIG, etc. that the Bush administration had no particular inclination to avoid bailouts.
There is a key difference between Bush and Obama on this issue, which goes to Obama’s favor — the Bush team had a predilection to avoid making changes in management. The Bush approach was to throw money at the problem, presuming that management changes would be some sort of “socialist” concession. The Obama approach recognized that throwing money at the company without addressing the underlying management problem was a waste of cash.
Unfortunately, Obama didn’t go far enough in cleaning out GM management, as was the case with the Chrysler-Fiat marriage. He should have ignored the opponents and taken what would have been mischaracterized as the “socialist” approach, which in this case would have entailed being a more pragmatic capitalist who booted out a lot more of the deadwood at the top. A cultural reinvention is in order, and it ain’t gonna happen with Lutz and probably can’t happen with Henderson.
“cautioning me against bringing in an outsider to run the company. “Alan Mulally called me with questions every day for two weeks after he got to Ford,” he said.”
I like this quote and it raises my respect for Mr. Mulally. I’ve always thought that new employees (at every job I’ve held) could be initially rated by their willingness to ask questions, regardless of past experience. If you’re not asking, your making mistakes that others will need to clean up. It’s refreshing to see someone at such a high position show a willingness to bug others.
The fact that this told Mr. Wagoner that Mulally was a bad choice for Ford, in an of itself, speaks poorly of his experiences at GM over his career, and himself as a manager.
Wasn’t there an ongoing SEC investigation of GM’s finances in the 2004-2006 time frame? I think the warning signs about GM’s books not being in order was there for those who chose to look.
jmo :
October 21st, 2009 at 11:26 am
“The question I’d like to ask Ron Gettelfinger is:
Obviously GM didn’t have enough cash on hand to survive the spike in oil prices and the economic crisis. That being the case, going forward, how much cash will you allow GM to accumulate before you demand higher wages?”
So, despite the fact that the article shows gross management ineptitude – and that the unions have , in fact, made many concessions – you write this?
You are either very rich, or have an intense desire to work for minimum wage. You and Wagoner should have a drink sometime – Come to think of it I’ve never seen you 2 together…
Ah ya big galoot, you never stop tryin’ do ya?
probert,
You are either very rich, or have an intense desire to work for minimum wage
I, like most people I know, am paid the market rate for my labor. The UAW insisted that GM pay wages far above the market rate. When that happens a firm isn’t allowed to build up sufficient cash reserve and invest in R&D, the end result is usually bankruptcy.
The UAW drove GM into bankruptcy and I don’t think there is any way you can argue that UAW greed isn’t at least 50% responsible.
This was a GREAT article that confirmed everything I suspected about GM, Chrysler and the mediocrity that is Detroit.
Say what you will about the Automotive Task Force and Obama, but I think they did a great job.
The biggest mistake? Keeping Chrysler. But I can understand the fallout (estimated at 300,000 jobs) would have potentially tipped the U.S. economy into a full-flung depression.
My favorite quote was the GM typified a ‘friendly arrogance’. Anyone who has worked with GM or its executives would say that nails what these douchebags are like.
Pch101: There is a key difference between Bush and Obama on this issue, which goes to Obama’s favor — the Bush team had a predilection to avoid making changes in management. The Bush approach was to throw money at the problem, presuming that management changes would be some sort of “socialist” concession.
In all fairness, I don’t think Bush had the time to demand that level of change. This all happened in the final days of his administration, when he was already a lame-duck president. Simply demanding that heads should roll without examining the entire company would not have been a wise move.
And I write this as someone who thought (and still thinks) that the Obama administration made the correct move in sacking Wagoner. If anything, they probably shouldn’t have stopped there…
Read this article, and then read John DeLorean’s book, On a Clear Day, You Can See General Motors, written in 1979…what’s shocking is how little the GM culture had changed between now and then, despite the dramatic changes undergone by the U.S. auto market during those years.
I was shocked by the stunningly poor management that we found, particularly at GM, where we encountered, among other things, perhaps the weakest finance operation any of us had ever seen in a major company.
Wow. All this time, the reputation was that if GM could do ANYTHING well it was finance. This was the reputation for years, that the place was run by finance guys who had no feel for product.
Now we find out that the finance operation was hollow. And even better, the guy in charge of that operation is now runing the company.
This is reminiscent of Chrysler. Before Iacocca, the company had been run by finance people for 15 years. Iacocca figured that if nothing else, the finance operation was in decent shape. He turned out to be very wrong, because he found no financial controls to speak of. But there, new top management brought in new people to implement some modern financial controls. Chrysler went on to become a very well run company before Robert Eaton (a GM alum) engineered the sale to Daimler Benz.
“Are you going to fire Ron Gettelfinger too?” Startled by the reference to the UAW head, I replied, “I’m not in charge of firing Ron Gettelfinger,”…
Heh, heh. Yeah, you bet you aren’t in charge of canning someone who as someone here said represents 50% of the problem. You don’t touch the anointed one’s friends and allies – ever!
Alan Mulally called me with questions every day for two weeks after he got to Ford,” As said before this is the sign of a very good manager (Mulally) and Rick’s negative spin on that shows how bad he is. I bet the questions Mr. Mulally asked him he asked mutiple other sources and digested the responses within context to make an informed decision. Pretty radical stuff really its almost like he knows what he is doing.
I just finished reading the whole Fortune piece and boy did I find it interesting. We rarely get a glimpse at one key player’s inside view of a situation like this so soon after it has all gone down.
I do wish Rattner had pushed for a much more radical makeover of GM management.
That Wagoner would show his scorn for Alan Mullaly as he is being fired shows just how arrogant, out of touch, and plain stupid he is. Ford is the one US auto company that has not taken government handout, the one that made sound financial decisions pre-market crash after Mullaly got there, and the one with the best chance of succeeding going forward. His reaction would be humorous if it weren’t so sad. His stupidity – and that of the people who promoted him to CEO – has not only cost the country billions and billions of dollars in government handouts, it has cost 10,000’s of workers their jobs, and that is sad.
One was that letting Chrysler go would give a needed boost to GM (and also to Ford), since most buyers of Chrysler’s strongest products — trucks, minivans, and Jeeps — probably would turn instead to the other Detroit automakers.
Harry maintained that a Chrysler liquidation could potentially add billions of dollars a year to GM’s operating income in a normal sales environment, vastly increasing the value of the company.
The group was torn (at one point the vote was four to four) and so were Tim, Larry, and I. We intuited that from a theoretical point of view, the correct decision could well be to let Chrysler go. But this was not an academic exercise….
Well at least four of Obama’s advisors had a modicum of sense. Unfortunately, it was not an academic exercise. It was a political exercise, and that necessitated pumping billions of dollars down a rat hole named Chrysler to the detriment of GM and even more so Ford.
As usual, geeber’s right.
I’d love to know what questions Mullaly asked Wagoner. Maybe, “Was killing Oldsmobile worth it?”
You know, at one time a Detroit Big 3’s CEO would have to be very careful of any conversations with his counterpart at another Big 3 company. Years ago, when Detroit had pricing power, the Justice Department was always ready to suspect price-fixing.
Call me Captain Obvious. He describes about how horribly managed GM’s finances were, “perhaps the weakest finance operation any of us had ever seen in a major company.” So they replace Rick with the guy who was the CFO and in charge of that “weakest financial operation”??? This guy expects us to swollow that!!!??? This is exactaly what I stated when Fritz was appointed.
Again their plan was never to rescue GM and Chrysler. It was to delay their inevidable liquidation fate to a day a couple years down the road, after the rest of the economy had recovered and a collapse of these 2 companies wouldn’t have as much of an impact. The fact that they appointed the CFO proves that.
After reading the complete article,I can’t see how we can justify the UAW bashing in the comment section.
“stunningly poor management”
Enough said!
I do wish Rattner had pushed for a much more radical makeover of GM management.
Had the GM bankruptcy proceedings occurred as they should have, free of government arm twisting, we would likely see a very different GM than what we see now, or perhaps a GM moving a different direction.
mikey :
October 21st, 2009 at 4:32 pm
“stunningly poor management”
Enough said!
It is managements job to keep the union in check,,,, therefore I agree with you…. “stunningly poor management”
Wagoner should have been fired long ago for this specific failure!
Had the GM bankruptcy proceedings occurred as they should have, free of government arm twisting, we would likely see a very different GM than what we see now, or perhaps a GM moving a different direction.
You mean, even more quickly towards liquidation? Rattner’s characterization of the government as the reluctant investor of last resort makes perfect sense to me. You really see the bankruptcy coming off any other way than it did? I understand the government’s only major concern as either preventing or delaying some massive social dislocation–that still seems quite likely, if not actually inevitable.
“More peculiarly, the ensuing press coverage seemed wildly over-focused on our test drive of the Chevy Volt, as if the company’s salvation rested on this one vehicle.”
That’s a fairly major quote, isn’t it?
stars9texashockey :
October 21st, 2009 at 11:48 am
I am so tired of hearing the “it’s huge in China” rationale for saving the most damaged, irrelevant US car brand outside of Mercury; Buick. Applying this same reasoning down under, Holden must immediately be renamed Buick.
In fact, when it comes to GM I’m just plain tired.
Exactly. It was completely possible to kill Buick in the US and keep it in China.
However, if you are going to keep GMC, you might as well keep Buick, so GMC dealers have some cars to sell on the side. Heck, killing Pontiac but not killing Buick and GMC as well is a questionable move for this reason, IMHO. I would have either kept all three or killed all three (keep Buick in China no matter what). Pontiac-Buick-GMC was/is one sales channel with three names.
The administration “saved” Chrysler by giving the majority share to the UAW and a door to FIAT to do whatever they can, which isn’t much at all.
If I were Dr. Goolsbee, I’d call that a tie, if not a win.
In all fairness, I don’t think Bush had the time to demand that level of change. This all happened in the final days of his administration, when he was already a lame-duck president.
Yeah, incomin’ left and right, but he was out the door in a few weeks. In some places that would be called NEGLIGENCE.
It’s not as if the problem “crept” up on them after hearings in late October.
I think the best you can say is that it fits with the “throw money, no accountability” behaviour.
I subscribe to the theory that both GM and Chrysler will inevitably fail and the bailouts/bankruptcies were merely the tools to allow both to survive long enough for the economy to recover to the point that their demise won’t have the impact that it would have had under the current economic circumstances. It will also buy enough time for the suppliers (those that will survive) to orchestrate their destinies in a post GM Chrysler marketplace.
I contend there is simply not enough money, time, product and customers for the outcome to be anything other than this.
Had the GM bankruptcy proceedings occurred as they should have, free of government arm twisting, we would likely see a very different GM than what we see now
True. It would be a dead company, liquidating in Chapter 7.
Unless one wishes to believe that there is a great Bankruptcy Fairy that was prepared to throw wads of DIP financing at the new company, the idea that there were alternatives to either Rattner’s managed outcome or a disorderly 7 is baseless.
There were no alternatives, because nobody in the private sector would have financed them. (That is, unless you had a multi-billion dollar lender in your back pocket ready to go, in which case you should have called GM to let them know about it.)
I agree with mtymsi and MasterOfTheJawan.
The plan is to keep both on life support until the economy recovers and the demise of both GM and Chrysler won’t send the economy spiraling further into depression.
Rattner’s description of the Bush administration punting the matter is at odds with the historical record. The Obama team was brought in to the bailout discussions immediately after the election. When the Bush administration indicated they preferred an auto czar who’d oversee financial viability and compel ch 11 if needed, the Obama team indicated that they’d rather set up their own bailout plan, so the Bush admin gave GM & Chrysler enough money/time so that the Obama team could do what they wanted. It’s the kind of civil thing done when power changes hands in this country (at least from Republicans to Democrats).
Rattner’s account is about covering his own ass and methinks he protests a tad too much on the subject of no political or policy agendas at play.
Toxicroach pointed out one of Rattner’s contradictions. Here is another.
The lenders felt that this represented an ideological decision by the Obama administration to tilt in favor of labor and against capital. That was simply not the case. At no time during our months of work did the White House ever ask us to favor or punish any stakeholder.
Many other unsecured creditors — notably, suppliers and consumers holding warranties — actually received 100¢ on the dollar. The fact was, Chrysler had to have workers, suppliers, and customers to succeed and therefore needed to give them more than called for by their rank in the capital structure.
So on one hand Rattner says that this wasn’t about tilting in favor of labor over capital, but then justifies favoring giving the UAW more than “called for by their rank in the capital structure”, which is exactly tilting in favor of labor over capital.
Apparently Rattner is making a distinction between doing so based on ideological vs practical reasons, but saying that labor is more important than invested capital is indeed taking an ideological stance.
PeteMoran: It’s not as if the problem “crept” up on them after hearings in late October.
Actually, the Bush Administration didn’t have to do anything. There is no law or statute that entitles companies to a bailout by the federal government to avoid bankruptcy.
President Bush could have left both companies go bankrupt, and then let President Obama pick up the pieces.
@ Ronnie Schreiber
I disagree with your comment “Rattner is making a distinction between doing so based on ideological vs practical reasons, but saying that labor is more important than invested capital is indeed taking an ideological stance.”
Consider it from Rattner’s point of view: the government could provide capital, but not workers or suppliers – and the main point of the whole exercise was to keep peaple employed and suppliers from failing. Insisting on keeping the traditional capitol rank order would have been an ideological decision, doing what was necessary for the government funded bankruptcy to achieve its goals was a pragmatic one.