By on November 24, 2009

Do you remember the time? (courtesy:WSJ)

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.

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11 Comments on “DetN Bailout Report: White House Forced Rapid Bankruptcy, UAW Refused Hourly Pension Freeze...”


  • avatar
    rnc

    I don’t think they will get a penny more directly, if anything there would be another “C4C”, where if you have the product you benefit, if not…not, but it will be open to all. (Have taken part in a large restructuring, I would have loved to been there for the task force meetings.)

    The UAW, freezing hourly pensions would have save 1000′s of jobs that were bought out (freeing up capital to work vs. capital for work performed long ago).  Once again thier decisions are based upon taking care of themselves at the expense of themselves.  Yes those people received $100,000 or so, but what after 2 years it’s gone and they will never approach making that kind of money again, (not even close, in a right to work state, I avoided hiring former UAW employees like the plague, I don’t care what anyone says, the stigma is there).  The UAW’s whole mantra about “creating the middle class” may be true, but as an organization they have done more than anyone else to DESTROY the “manufacturing middle class” in this country. 

  • avatar
    texlovera

    Heh – looks like an old Kraftwerk album cover.  Maybe Man-Machine?

    And a 300-page slide presentation? I don’t blame Obama’s team for blowing that off. It’s the same mentality that a) created GM’s accounting nightmare, and b) GM’s subsequent impotence to fix it.

  • avatar
    mikey

    Ok Edward,nice history lesson.  In all the excitement,and contract openings and concessions,I kind’a lost count. So would it be correct to say,that as of right now the UAW has not  agreed to a pension freeze for GM? I’m a retired CAW/GMworker,and my pension is most certainly froze,untill 2015

  • avatar
    superbadd75

    So once again, the people that have been affected most (American taxpayers) by the decisions made in this matter were left in the dark, and the work was done behind closed doors. We the people no longer control this country, and we are being run into the ground. The unions are currently in control, with a Congress and President that bows to their command.

    • 0 avatar
      ClutchCarGo

      We, the people, have never controlled this country. This country was started by the well-fed, the well-read and the well-bred, and it has always remained in their hands. The only thing that changes are the faces of those pushing the levers of power.

  • avatar
    Contrarian

    I lost about 50% of the value of my Delphi pension (which is now Fed run). Obviously I was salary, not hourly, and somehow ours weren’t worth protecting but the UAW pensions were. I wonder why?

    Would I ever buy a GM car again? Not bloody likely.

    • 0 avatar
      ihatetrees

      You have my sympathies…
      It’s a pity there was no political will to tune up GM (and Delphi) management years ago when it was obvious that their pension promises were unworkable.  Of course, government programs (and government pensions) use the same fairy-tale grade accounting.
      The fact is, many firms went down similar paths years ago years before the GM fiasco.  Here in upstate NY, steel and airline workers come to mind – even their union workers took a pension haircut. And a lot of them now feel just like you do about buying a GM product…

  • avatar
    mikey

    @rnc….. Really, you must have a clone up here in the frozen north. I sat through a 20 minute rant from an HR guy. Its not like I didn’t make my CAW background clear on my resume. What the hell, I let him vent. I figured he is just a little jealous of my pension,probably bigger than his paycheck.

     I actually landed a much better job from an open minded  HR guy. So I guess it was no loss. I didn’t want to work for a company that was that narrow minded anyway.

  • avatar
    Robert Schwartz

    “I can’t think of a problem in the world I can’t solve for a $1 billion,”
     
    Oh, come on, a billion is chump change.

  • avatar
    educatordan

    Sighhhhhhhhhhhhhhhh.  I wouldn’t have minded a “Canadian Leyland” as this article called it, but I don’t trust the incompetents at GM to run it.  In fact (and yes I am a daily reader of this site and have seen Fiat’s slide presentations) I would have trusted Fiat more to run the Leyland operation, taking over ALL of GM and Chrysler, with only the strong surviving, destroying Chrysler’s dealer network.  I know many predict Economic Apocalypse if such a thing were to happen but I am a firm believer that these should have been REAL bankruptcies with  plants and product being auctioned off to the highest bidders.
     
    These two companies are still burning cash as if they were almost in their pre-bankruptcy state.  They are engines of wealth destruction right now, not engines of wealth creation.  Which is what companies are supposed to exist to do.

  • avatar
    jackc10

    I spent many years in the minor league of local government. There is one truism I learned that applies at other levels, especially in this instance.

    “Nothing good happens to the public when the door is closed.”

     The above article is a splendid example. We , hoi polloi, were kept in the dark. Imagine the outrage beyond Detroit metro and the UAW halls.


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