On October 13th of last year, when TTAC’s Bailout Watch clocked in at a mere 115 entries, GM’s then-CEO Rick Wagoner and board members Erskine Bowles and John Bryan approached the Treasury for a “temporary” bailout. Not that we knew it at the time. “In this period of continued uncertainty in the markets, you really can’t rule out anything,” said GM spokesfolks at the time. “Stand by for another big public investment in a failing firm,” warned TTAC. As subsequent events proved, the rush to bailout had already begun. Funny then, that we’re only now learning some of the most crucial details of the chaotic maneuvering of late 2008, thanks to a Detroit News investigation. Though the industry’s disastrous hearings before congress nearly derailed the deal, the initial strategy of approaching the White House would prove to be the key to the eventual bailout. In fact, President Bush was ready to provide $25b to GM, Chrysler, GMAC and Chry-Fi on December 19, only to have talks with the two finance firms break down. Instead, GM and Chrysler were given $9.4b and $4b respectively, with GMAC getting $7b 10 days later and Chrysler receiving $1.5b in January.
This staggered bailout, with multiple tranches soon came to symbolize the indecisiveness that would characterize the entire rescue effort. For example, the idea of a merger between GM and Chrysler was being discussed up to late October, when it was abandoned by GM, only to be brought back to the table early in 2009. Twice. The DetN explains:
Henderson rebuffed overtures from Chrysler in February, but two months later he raised with the task force the possibility of acquiring parts of Chrysler, if a deal with Fiat faltered. “If the Chrysler deal doesn’t go through, we’re interested in some pieces of Chrysler,” Henderson said, according to a person familiar with the situation. “We’re interested in Jeep. We’re interested in a couple of the powertrains.” GM was most interested in Chrysler’s jewels: the Jeep brand, Dodge trucks and minivans. “Fritz’s view on the Ram was, it’s a brand new Ram. You run it for five years for cash and not do a new one,” said a person involved in the talks. Also under consideration in GM’s corporate mind: eliminating Chrysler’s dealer network, and selling Chryslers at GM dealerships.
Several members of Obama’s auto team (including Steve Rattner) remained in favor of an American Leyland solution, until someone did the math and realized that a GM-Chrysler merger would be more of a Canadian Leyland affair. Most of the jobs that would have been saved in such a scenario would have been located in Canada, while it would only have saved about a quarter of Chrysler’s US jobs. The task force quickly came to see a GM-Chrysler merger as a worst-case scenario in the event of a failure of the Fiat option, even though it could have been a cheaper option.
As both companies began to move towards bankruptcy, the government task force took a firm hand in guiding the processes. Even though GM had foreseen a somewhat different bankruptcy experience than the government had planned.
GM planned to present a 300-page slide presentation at the first meeting. The Obama team wasn’t interested. Instead, they went through 15 major issues and assigned deadlines to specific people. With the efficiency of a drill sergeant, task force member and Wall Street vet Harry Wilson, went through each item and got a commitment of when it would be completed. GM filed for bankruptcy June 1. CFO Ray Young said that due to its complex accounting system, GM couldn’t exit by Aug. 31 or even Sept. 30, the end of a quarter. Wilson was incredulous: GM would lose at least $100 million a week during bankruptcy, and would be willing to incur as much as $1 billion in additional losses, because it couldn’t resolve accounting issues. “I can’t think of a problem in the world I can’t solve for a $1 billion,” Wilson said, according to participants.
The government task force also held secret talks to sell GM’s bankrupt supplier Delphi to financier Carl Icahn, which fell apart when Icahn held out for a better deal. The UAW was no better of a partner in the sacrifice-sharing department. GM had asked the UAW to freeze its hourly pension plan, a move that the union refused point-blank. Could the government have pushed the union to accept GM’s offer? Perhaps, but the will clearly wasn’t there. And UAW President Ron Gettelfinger was standing tough, even with the fate of the entire industry on the line: he actually walked out of one meeting with Fiat’s Sergio Marchionne.
None of these revelations carry the explosive power they would have had they been made public during the course of bailout deliberations. In retrospect, though, they provide a few more wrinkles to the bailout narrative. The battle over the bailout, as such, is over. The taxpayers will take a bath on the adventure, no matter what. But by studying the events of the last 15 months, we may yet learn valuable lessons about government support for an industry that could well end up needing more.