By on September 3, 2010

We can’t pretend to be overly enamored with former “car czar” Steve Rattner, who oversaw the auto bailout before being disgraced for his role in a New York pension fund pay-for-play scandal. Still, the guy was in the thick of things during last year’s negotiations over Detroit’s rescue, so he knows where the bodies are buried. And in his new book, Overhaul, which has been released to select outlets ahead of its October 14 publication, he tells a whole lot of stories about the months of bailout proceedings that led to the rescue of GM and Chrysler. Of course, Rattner has an agenda in all this, namely proving that

The auto rescue remains one of the few actions taken by the administration that, at least in my opinion, can be pronounced an unambiguous success

so he’s not necessarily an unbiased source. But with grains of salt at the ready, let’s dive into his spilled guts and see if what secrets lie beneath.

For one thing, Rattner reveals that the auto bailout was going to cost $100b instead of the eventual $85b pricetag. But hey, what’s $15b between friends? Rattner also claims that GM was nearly ousted from the RenCen. Or, more precisely, Fritz Henderson suggested moving GM’s headquarters to the Warren Tech Center, as a symbol of GM’s commitment to “hands on management.”According to the DetN,

Rattner praised the idea. But a White House aide, Brian Deese, who has been heavily involved in auto policy, denounced it.

“Are you out of your mind?” Rattner quoted Deese as saying. “Think what it would do to Detroit.”

The White House even commissioned an outside analysis of the impact a move would have on Detroit property values, Rattner wrote. The answer: an estimated “double-digit hit on already deflated real estate prices.”

Leaving the RenCen “made a lot of strategic sense,” Rattner wrote. But Michigan native Gene Sperling, a U.S. Treasury Department official, was one of many who fought the idea.

“It’s over for Detroit if you do this,” Sperling yelled in a meeting, Rattner recalled. “Don’t do this to (Detroit Mayor) Dave Bing… He’s a good man trying to do a good thing.”

Is it any surprise that Detroit hometown boosterism ended up playing such an important role in the bailout of America’s “national auto industry”? Luckily, as Rattner points out

this unique intervention into a specific GM matter was never leaked to the press, saving us from having to explain how it comported with our policy of letting GM and Chrysler manage their own affairs.
Because then the White House would be caught lying, and Rattner wouldn’t have had anything to write about. Sometimes transparency just has to take one for the team.Thanks to this lack of transparency, we’re also only just learning that Nissan/Renault CEO Carlos Ghosn offered to create an alliance with GM, a move that Ghosn pursued even before the bailout. But that’s not all…

Rattner said he politely rejected the idea, because there was too much overlap. But he asked Ghosn: “Would you be interested in becoming CEO of GM?”

Ghosn declined.

“I knew it was a long shot and was not surprised when he deftly demurred,” Rattner recalled.

But that wasn’t the only difficulty with foreign execs.

Fiat CEO Sergio Marchionne, he said, clashed with UAW President Ron Gettelfinger and sought to take advantage of the president’s timetable, which required a quick tie-up between Fiat and Chrysler.

Marchionne, he said, told Treasury officials: “This is a totally new ballgame.”

He also revealed that the government wanted Fiat to put up money for getting a 20 percent stake in Chrysler.

“We struggled to persuade Sergio to put up some cash,” Rattner wrote.

And we all know how that worked out. Meanwhile,

Marchionne, according to Rattner, told Gettelfinger about the need to accept a “culture of poverty” rather than a “culture of entitlement,” attacking, among other things, retiree health care benefits.

Gettelfinger responded angrily.

“Why don’t you come and sit with me and tell a 75-year-old widow that she can’t have surgery and that you killed her husband?” the union chief retorted.

According to Rattner, Obama stayed largely above the fray, asking sometime last November

Why can’t they make a Corolla?

But, it seems that the issue that most concerned Obama was the payoff to disgraced GM CEO Rick Wagoner

“I could see the president’s jaw muscles tighten,” Rattner recalled.

Obama had difficulty with the “notion of writing a check that was about 100 times the annual income of a GM worker to the CEO who had brought the company down.”

The president, he said, “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.”

Meanwhile, not everyone in the White House was even pro-bailout. The President’s Chief of Staff Rah Emmanuel reportedly asked

Why even save GM?
Apparently a certain union figured heavily into the answer to his question, because the other Emmanuel quote of note is
Fuck the UAW
Of course, the White House is refuting Rattner’s recollections, telling Politico
Throughout the entire process that saved the auto industry, Rahm tirelessly defended and advocated on behalf of the auto workers. Any suggestion to the contrary is simply ridiculous
GM’s spokesfolks tell the DetN
The book is history. We’re a new company and we have too much work to do and no time for book reviews.
Which seems like a good opportunity to trot out the old line about those who refuse to read history being doomed to repeat it. And rather than aggrandizing Rattner, Overhaul seems to simply fill in the kinds of details that should have been more available during the government intervention. And in light of these revelations, it’s tough to see how Rattner thinks that the auto bailout was an “unambiguous success.” Needless to say, TTAC will provide a full review of the book when it hits shelves on October 14.
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39 Comments on “Secrets Of The Bailout...”


  • avatar
    Truckducken

    Geez, I can’t believe the GM guys came up with the idea of moving to where the action should be…pretty impressive statement that would have made! And as far as property values, BFD. Like the owner of a $5000 Detroit house is really going to be hurt that much more when its value drops to $4000? Besides, I’m pretty sure GM’s long-term success is more important to the Detroit property market than whether or not that white elephant downtown stays full a couple more years.

  • avatar
    Mercennarius

    Ghosn is an incredible CEO, but he’s not stupid.

  • avatar
    Educator(of teachers)Dan

    “By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest.” Confucious
     
    Now we reap the bitter fruits.

  • avatar
    jpcavanaugh

    So now we know: business decisions were made on political considerations.  Who could have guessed?
    Also, has anybody noticed that Old GM (Motors Liquidation Company) filed another Chapter 11 bankruptcy a couple of days ago?

  • avatar
    Dave M.

    As much as the bailout(s) make me physically ill, I have to agree with the RenCen move (or lack thereof).  Detroit is already reeling, and Bing is trying his damndest to make sense of it all and paint a realistic way forward for the region.  The move would have put a world of hurt financially, physically, and psychologically on the area…..

  • avatar
    ihatetrees

    <i>Why can’t they make a Corolla?</i>
    Dear Mr President:
    Under UAW rules, it would start at $25K.
    There was WAY more profit in trucks. And in financing people out to 60 and 72 months – and in getting people to take 2nd mortgages – remember DiTech?
    In the late 1990′s, GM was worth more than Toyota on those strengths. That’s where GM put its management talent – until $4 gas gutted sales, housing collapsed, and North American competition from transplants made it impossible to compete.
     

    • 0 avatar
      LXbuilder

      You know that they are built up here in Ontario and the workforce is paid more than UAW workforce don’t you? I’ve got family in that plant building that car, funny how every a-hole on these sites blames labour when they have no idea what they are talking about.

    • 0 avatar
      nonce

      It’s not the cost of labour that’s the killer. It’s the asinine work rules and the inability to fire the mouth-breathers.
      It’s pretty telling that the Chief of Staff of the most liberal president in a generation said “fuck the UAW.”  Even among the Democrat rank-and-file, the unions are, at best, tolerated. (Even we have to send our kids to public schools every now and then.)
      My extremely liberal parents were born in Detroit 70 years ago, and blame the unions for the demise of the Big 3.
      The union’s day is done. It’s over. Gone. Kaput.

    • 0 avatar
      shiney2

      Actually a big part of it is the cost of our screwed up employer based insurance system.

    • 0 avatar
      John Horner

      Fine, then build them in Mexico. GM has factories there. You can’t simply blame the UAW for all of GM’s product woes. Heck, GM builds the Aveo in Korea, and it is the worst vehicle in its class.

      As to “the most liberal President in a generation” line: A good argument can be made that Ronald Reagan’s actual policy moves were often more liberal than Obama’s. Over the course of Reagan’s time in office he signed tax increases which overall took back about half of his famous 1981 tax cuts http://www.capitalgainsandgames.com/blog/bruce-bartlett/1632/reagans-tax-increases . Reagan vigorously pursued nuclear arms reduction treaties with the USSR. Reagan put Kennedy and O’Connor on the Supreme Court. All in all, the Gipper was hardly the die hard uber-conservative many people now paint him as.

    • 0 avatar
      daga

      I think I would have answered him?  Good question but probably the same reasons that Toyota can’t build a Silverado.

    • 0 avatar
      geeber

      Interestingly, Toyota, Honda, Nissan, Hyundai, BMW and Mercedes have no trouble providing health care coverage for the employees of their U.S. plants. (If national health care is so great, then why did the build plants here in the first place? They could have stayed in their home countries, which have government-provided health care.)

      The key is to make sure health care benefits remain affordable. GM, Ford and Chrysler could have reduced their health care burden on their own, but the UAW wouldn’t hear of it, and management wasn’t willing to push the issue.

      And please note that studies have shown that companies pay as much in countries with national health care as they do here for employer-provided insurance. They just pay the costs in the form of taxes.

  • avatar

    my dearly departed friend Jerry York wanted me to meet Carlos, I passed. what GM needs isn’t an outsider but an insider who knows the businesss. trouble is there aren’t very many of us.

  • avatar
    MikeAR

    Is Chooch lying or misremembering? I thought Kwame Kilpatrick was still mayor then. Am I wrong?

  • avatar
    Dr Strangelove

    Why did they reject Ghosn’s bid to adopt GM? Overlap is just what the doctor ordered – it’s also known as scale. Much better than a merger (of equals or not) without any overlap.
    This looks like a missed great opportunity to me.

    • 0 avatar
      joeaverage

      Overlap isn’t a bad thing if you’ve got distinct but overlapping products. GM’s problem is they don’t seem to realize that you can’t sell the same product in the same market with 5 different labels on it. THAT’S overlap.
      Until recently Honda sold the CR-V and the Element which were the same vehicle under the skin but all the visible parts were different. I don’t think the current ‘V and Element share that much though.

  • avatar
    AaronH

    Rattner is a proven liar and parasite…Why even mention this maggot?

  • avatar
    jkross22

    That first quote in the article, that the bailout was an unambiguous success, is profoundly stupifying.  GM’s IPO said they’re not sure the numbers they report are accurate.  How is a faux bankruptcy and an $60b+ bailout of a poorly managed company a success?
     
    Too big too fail.  I guess in Rattner’s mind, that’s all that matters.

  • avatar
    gslippy

    Mr. Emmanuel is smarter than I thought.
     
    Any chance the book release will be delayed until after the mid-term elections?
     
    Maybe President Obama should ask himself why Toyota won’t build a Cobalt.  That may answer the question about why GM can’t build a Corolla.

  • avatar
    shiney2

    Its a huge success compared to GM going into an uncontrolled failure during the worst part of the US economic free fall! That would have caused massive supplier failure and a far worse midwest depression, destroying Ford and likely many of the transplants. Anyone who thinks we would have been better off letting GM fail is delusional.

    • 0 avatar
      Daanii2

      Count me in as delusional then. Because I think we had a garden-variety economic downturn – caused mainly by the housing bubble bursting – that pretty well ran its course, as expected. No thanks to the US government. In fact, government policies made the bubble bursting more painful than it would have been.
       
      From my view, those who think the world economy was teetering on the brink of collapse, but was saved by the genius of Barack Obama and friends, are the delusional ones. For the first time in our history, the government bailed out two bankrupt companies with taxpayer money. We all paid for GM and Chrysler workers to keep their jobs and the retirees their pensions.

      To me, that unfairness is the only thing that was remarkable about this whole sad affair.

    • 0 avatar
      mythicalprogrammer

      @Daanii2
      I don’t think you’re delusional, just uninformed.
      The housing markets were own by two loan corps, Fanny Mae and Freddie Mac. If they went down then we go to hell. Why? Cause there were no government insured program, FDIC, nor does it required these corp to set some money aside. After the depression the government created FDIC and other regulations to help make banks going out of businesses and taking people money down with them impossible. So now if banks goes out of business, people still get their money back. Because of the Financial sector and greedy shady people creating new ways to make money, our government have no regulations for these thing. Therefore regulations are good when they are use moderately. The Volker regulation tries to address these shadow gambling issues and force these practices in public and forces these financial corp to set aside money so if anything go bad they still have money to recover.
      We paid to keep unemployment from escalating from 10.7% to god know what. I think it could have hit beyond 20%. Why? Cause Spain financial sector got raped and they ended up with 20%. We, on the other hand, have the financial sector and the big 3. Of course comparing Spain and America is a bit of a sketch but still. Now from Jan to Augs we average 95,000 public jobs per month. So we’re doing ok, we’re not going further into recession, and as I have been ranting over at digg, there is no double dip fear monger crap.
      As for all the stimulus complaints, people can look at Australia’s Keynesian economic policy, it worked. Yeah, Obama’s stimulus should and probably will work. Cause history have shown World War and/or Keynesian economic policy worked. Austrian’s economic have never worked in history.
      Then again these are all base on my opinions from all the news I’ve gathered and I can be the delusional one.

    • 0 avatar
      geeber

      Keynesian economics failed miserably in the 1930s. The unemployment rate was still in the double digits by 1940, even with the stimulus of increasing war production. (It was about 6 percent in 1928, the last full year before the Great Crash.)

      And the “stimulus” of World War II production only worked because, after the war, we were the only game left in town. Every other major industrial economy had been bombed to rubble. We could thus grow our way out of the huge deficits run up during the war. Unless the Obama Administration is hoping that the Germans and Russians invade Poland, and the Japanese bomb Pearl Harbor within the next 1-2 years, the example of the 1940s isn’t applicable to today.

      Spain is also suffering because of “green policies” designed to encourage the use of alternative energy. A respected analyst in Spain has produced a report showing that those polices, which are designed to encourage the production of green energy, have destroyed 2.2 jobs for every “green” job produced.

  • avatar
    LXbuilder

    I’ve got to agree with you Daanii2, you are delusional.

    • 0 avatar
      daga

      And apparently ill informed.  Chrysler bail out in the 80s?  Chicken tax or for that matter, all protective tariffs)?  The list of bailouts over the ages is longer than this comment box likely allows.

    • 0 avatar
      Daanii2

      And apparently ill informed.  Chrysler bail out in the 80s?  Chicken tax or for that matter, all protective tariffs)?  The list of bailouts over the ages is longer than this comment box likely allows.

      My point was that the federal government bailed out two bankrupt companies. Never happened before. Shouldn’t have happened this time.

  • avatar
    50merc

    Apparently even the White House can’t get GM to answer its question, “Why can’t they make a Corolla?”  Maybe that question is too tough. OK, here’s a simpler one: why can’t GM (or Ford, or Chrysler) engineers design a four-cylinder engine that runs as smooth as four-bangers from Toyota or Honda? In the absence of a persuasive argument to the contrary, my hunch is the explanation is “Detroit’s engineers aren’t as good.”

    • 0 avatar
      joeaverage

      The smaller cars aren’t valued as highly by the customer and car companies alike so Detroit isn’t going to spend alot of time (money) trying to compete. We Americans are terrible about putting all our eggs into one basket. When the handle falls off of that basket, then everything comes to a crashing halt for a while. What I’d like to see is GM moving away from the goal of best seller and make existing products better little by little instead of canceling them outright and reintroducing a new product in it’s place with a new name and marketing campaign.

  • avatar
    slumba

    Why do I get the feeling that the gov’t was playing checkers, while everyone they were talking to was playing chess?

  • avatar
    mythicalprogrammer


    Why can’t they make a Corolla?

    LOL, I love this guy, so glad I voted for him. Cause apparently they [GM] don’t believe in bread and butter cars. They live in delusional world where everybody wants vette, suv, and trucks and everybody are cars freaks. Which is funny because car freaks, us, make up a very small chunk of USA population, everybody else buy cars to go from point A to B and back.

    Man this is a great post. I just want to read this book now. I’m pretty damn sure Obama is going to go down in history with this and many other stuff he have done (healthcare overhaul and financial reform).
     
    Even with the 30% or so tariff on Japanese auto import, the big three didn’t even try to beat corolla. At least they are finally trying, with Malibu and SHO. They’re decent.

    • 0 avatar
      RandomDudeUSA

      Man this is a dumb post. So glad you voted for him??? Not sure I would be advertising to the world on that one. I would also advise you brush up on English grammar and get a clue about where vehicles are built these days. Since most recent Corollas have come out of NUMMI in Cali and as of this year Canada, I don’t think the “30% or so tariff on Japanese auto import” applies to those vehicles made in NA. In addition the Malibu and SHO are not competitors to the Corolla, well unless some one is clueless about cars and would cross shop a compact car with a mid sized car and a large “sport” sedan.
      I do have to say that this is the most intelligent think I have heard from O’bummer in his 18 months, and I don’t think you can blame Bush for this one…oh wait here it is. I think H.W.Bush as VP to Reagan and later his son GW Bush secretly took over GM Chevy and made them make the: Citation, Cavalier, Corsica, Cobalt, Cruz…insert Crappy car I missed that starts with a C here____
      Yeah GM, Ford, Chrysler all never had an honest Corolla/Civic or Camry/Accord competitor, but that doesn’t mean you can buy them and get the Government to “help” them make a competitive car. The free market will bring us the best car we can have not the US gov, EPA, NHSTA……let the people choose not the politicians.
       
      Volt anyone????

  • avatar
    DC Bruce

    Well, of course Rattner, as a major architect of the plan, is going to call it a success.  But there’s one question I would ask him — and it’s in an area with which he is familiar:  Why would anyone in their right mind loan GM or Chrysler a penny?
    One of the big things that happened in these bankruptcies — not well reported because it’s perceived as “inside baseball” for financial types — is that secured creditors were moved to the back of the line — and stiffed — in favor of the UAW, which was an unsecured creditor.  In short, the administration just re-wrote bankruptcy law (about who gets paid first) for the auto companies. Unsecured credit is always the most expensive credit (because the lender has no security) just look at the difference in interest rates between credit cards and home mortgages.  So, in the future, if Chrysler or GM want to go to the credit markets, they’re going to pay more to borrow money than, say, Caterpillar or even Ford Motor.
    Let’s remember that a big reason that Ford Motor is still alive without a big bailout is that one of Mullaly’s early moves as CEO was to mortgage everything in sight to accumulate a pile of cash to fund operations through some lean times.  It seems to me that that won’t be an option for GM or Chrysler if they have a similar need in the future … or it will cost them a lot of money to do so.

    I’d be curious to hear Rattner’s take on either (1) why that won’t happen, in light of the administration’s strong-arming of secured creditors of GM and Chrysler or (2) why that’s not a future problem for these companies.

  • avatar
    george70steven

    I’m pretty sure GM’s long-term success is more important to the Detroit property market than whether or not that white elephant downtown stays full a couple more years.
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