By on January 8, 2011

John McElroy recently quit the Automotive Press Association because they invited Steven Rattner, former head of the government’s auto industry task force, to speak. He warned, “If you want to read [his] book, DON’T BUY IT. Get it from your local library, because Steven Rattner is a rat who doesn’t deserve a dime of anyone’s money.” What he didn’t say: don’t read the book. And with good reason: it’s well-written, insightful, and definitely worth reading.

McElroy has repeatedly attacked Rattner’s character, even ripping on his last name, Fast Times at Ridgemont High style. He notes that Rattner was an investor in Cerberus before serving on the task force, likely used his influence to keep the media from covering his wife’s DUI, and was involved in a kickback scheme with the New York pension fund. I don’t doubt that this is all true, but still see insufficient grounds for such a vehement reaction.

Rattner’s book clearly involved a lot of hard work. He did not simply write up his own recollections. Instead, he claims to have interviewed many of the people involved, and impressive levels of detail and accuracy confirm this. The average book by a seasoned automotive journalist is shoddy in comparison.

If anyone should see a thoroughly researched book as work that deserves to be compensated, it is a journalist. Essentially, McElroy is arguing that anyone accused of a crime (Rattner hasn’t actually been convicted of a crime, though he has now paid very large settlements) does not deserve to be compensated for any of their work, even hard work unrelated to the crime. (A book based on the kickback scheme would be a different matter.)

This isn’t a tenable position. Something else is going on. McElroy provides some hints, labeling the book a “kiss and tell.” He’d clearly prefer that Rattner had, like most insiders, kept his mouth shut. The problem isn’t the accuracy of what Rattner wrote. This isn’t questioned. The problem is that Rattner divulges the contents of private meetings and private discussions. These meetings and discussions were conducted in the public interest, and involved tens of billions of public dollars, but apparently the public has no right to know what went on in them. McElroy interviews people for a living, and touts his show as “uncensored.” He must want at least some people to talk. Why not Rattner?

Rattner’s character isn’t a sufficient reason. Everyone in the auto industry isn’t squeaky clean, but dirty laundry tends to be ignored. Rattner is a special case.

What makes Rattner special? I don’t know, but can hypothesize.

Rattner was and remains an outsider who by his own admission knew nothing about the auto industry. The latter proves a non-issue. I’m generally skeptical of the entire concept of “quick studies,” but Rattner almost makes me a believer. The book includes accurate insights about how GM and Chrysler operate that have seemingly eluded the bulk of the auto industry press for decades. For example, “nothing happens at GM without PowerPoint,” labor was being treated as a fixed cost with absurd consequences, and the “grin fucking” “culture of mediocrity” couldn’t handle open conflicts, preferring to let things drag out forever behind the scenes. In comparison, the UAW’s leadership seemed knowledgeable and realistic once out of view of the membership. They had a better grasp of GM’s situation than GM’s leaders did, and behind the scenes were interested in working out a viable solution.

Unlike a journalist who must maintain access to sources, Rattner clearly felt free to communicate what he and other insiders observed. Such as the Treasury Secretary Paulson’s initial reaction to GM’s initial request for help: “This is complete bullshit!” And Rahm Emanuel’s reaction to the supposed need to save union jobs: “Fuck the UAW.” (Was the latter said and then written for the sake of appearances? Perhaps.) In true “kiss and tell” fashion, names are named, and Rattner colorfully expresses his personal opinions of various players. A violation of insider etiquette? No doubt. But we learn much more as a result.

Perhaps the largest revelation: GM possessed a very weak grasp of its finances and cash position, and was repeatedly unable to answer basic financial questions. GM’s leaders “seemed to be living in a fantasy world” and refused to consider bankruptcy, even though a bankruptcy seemed virtually certain to the task force. (The goal of the task force nearly from the start was not to avoid bankruptcy, but to avoid an uncontrolled bankruptcy.) For these reasons, Rattner repeatedly characterizes GM’s top executives, and especially CFO Ray Young “whose lack of common sense seemed limitless,” as incompetent. And yet he also gives GM’s leaders credit where it is due, noting that GM’s manufacturing operations were much more efficient than the task force initially assumed, and that there was thus no fundamental reason it couldn’t compete.

Worse than being an ignorant outsider, Rattner was from Wall Street, the worst sort of outsider. His New York personality tends to rub Midwesterners the wrong way. They—and I do mean they, McElroy is far from alone in his opinion—don’t like him.

Adding insult to injury, this unlikable outsider decided he could overhaul the auto industry without relying heavily on insiders. Rattner acknowledges that the team received “much unsolicited advice,” but found many of the suggestions “impractical.” In general insiders were seen as too wedded to how things had been done and so incapable of envisioning much less producing the necessary changes. Some insiders with advice (or more) to offer might have felt slighted.

Some have argued that Rattner’s book is overly self-serving. They must have read a different book than I did—if they read it at all. Rattner rarely takes personal credit for the accomplishments of the task force, instead ascribing nearly all of them to other members, especially labor expert Ron Bloom, corporate restructuring expert (and Republican) Harry Wilson, and bankruptcy expert Matt Feldman. Bloom took the lead on Chrysler, while Wilson did the same with GM.

Rattner describes some conflicts within the task force. Some members, most prominently Wilson, wanted to kill Chrysler, partly because the case for saving it was weak, partly to give GM a better shot at success. The decision to instead save Chrysler was ultimately made by Obama, and by the slimmest of margins. Rattner doesn’t conceal his distaste for Sergio Marchionne, who apparently tried to use the unbeatable hand the government dealt him to bully the other parties into submission. After Chrysler was taken care of, Bloom tried to assume an equally prominent role in the GM overhaul, which brought him into conflict with Wilson.

We’ve heard a lot about how badly bondholders were treated, but Rattner convincingly argues that they’ve actually received more than they should have. If the companies had liquidated, debt holders would have received very little, perhaps even nothing in the case of GM’s bondholders. Only the government’s desire to save the companies from liquidation gave them any reason to expect more. They knew that every day the situation remained unresolved would cost the government tens of millions of dollars. So by threatening to delay a resolution they hoped to force the government to pay them off. The task force called their bluff and managed a quick resolution through the bankruptcy courts, where the judges prioritized keeping the companies alive. As part of the process the debt holders ended up receiving considerably more than Rattner strongly felt they deserved. They received their payoff, just not as large a payoff as they dreamed of receiving.

Rattner does take personal credit (blame?) for one thing he felt needed to be change, but that insiders were not going to change. New investors in troubled companies often replace the top executives, and the government was serving as GM’s investor of last resort. So, acting much like a private equity investor, Rattner personally fired GM CEO Rick Wagoner, and stepped up to take the resulting flack. Many prominent members of the automotive press liked Wagoner. And, even if they hadn’t, they don’t like the idea of outsiders firing insiders. Prominent members of the press likely think of themselves as insiders, and closely identify with the executives they cover. Powerful outsiders like Rattner are the common enemy.

Rattner doesn’t pretend that the outcome was perfect. Though Obama is generally portrayed in a good light, the president is criticized for one thing: refusing to jointly work with the Bush administration on the crisis. In Rattner’s view, the “one president at a time” mantra cost taxpayers billions by delaying the bankruptcies. Another indication that the book is not political, Rattner praises Republican senator Corker for attempting to use the crisis to force needed changes, and credits him for laying down guidelines that shaped the outcome.

Rattner also wishes more could have been done to wring concessions from the UAW, especially with regard to the pension plan, and to change the culture at GM. He criticizes the UAW for selling out new hires in order to protect the wages of existing workers. And, at the end of the book, the question of who can and should lead GM remains undecided, with Henderson and Whitacre (the latter the task force’s last chance to effect meaningful cultural change within GM) both out after short terms.

But, by his own admission, Rattner’s a pragmatist. He realizes that the outcome is never going to be perfect, and that insisting on a perfect outcome likely would have resulted in a much worse outcome for all involved. The major achievement of the task force was forcing everyone to accept a less than ideal outcome from their own perspective, to share the pain—which had not been done with the financial industry bail out. Given huge problems decades in the making and just a few months to solve them, the task force achieved much more than anyone could have expected it to without the benefit of hindsight. It’s easy to forget how impossible a GM bankruptcy seemed to most people, especially those leading GM but also much of the auto industry media, before the fact.

Rattner doesn’t pretend that politics were not a factor. Some actions are described as politically-motivated, most notably the government’s insistence that GM’s headquarters remain in downtown Detroit and GM’s early repayment of some of the money—by using some of the money. Senator Barney Frank got GM to delay the closing of a small parts depot in his state. Some proposed actions fail what Rattner labels “the Washingon Post test:” how would they appear on the front page of the paper? But these were exceptions, not the rule. Rattner did what he could to minimize the role of politics, and largely succeeded.

Are there things Rattner is not telling us? No doubt. For example, it’s possible that Obama was more involved in some of the task force’s more controversial actions, such as the firing of Wagoner, and that Rattner is continuing his role of shielding the president from criticism. In general Rattner says little about what might have been his primary function, buffering the rest of the team from politicians and other parties interested in influencing the outcome so members could do their jobs. But overall I find Rattner’s book as complete and lacking in extraneous bias as an insider account could possibly be. For once we’re not entirely stuck on the outside, wondering, “What were they thinking?” It no doubt helped that Rattner’s position was temporary, and that he does not have to continue to work with the people portrayed in the book.

No one likes being told what to do by an outsider, even (especially?) when they know the outsider is right. Rattner’s book now serves as a well-researched and well-written permanent record of this outside intervention, and how well it worked. Since the book itself is unassailable, Rattner’s character becomes the target. I, for one, generally dislike character-based attacks, and would like to see such an informative insider account properly rewarded.

If you feel the same, buy the book.

Michael Karesh owns and operates TrueDelta, an online source of automotive pricing and reliability data

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70 Comments on “Book Review: Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry...”


  • avatar
    Educator(of teachers)Dan

    I’ll definitely pick it up at the library.  I prefer to borrow books instead of buy them.

  • avatar
    Telegraph Road

    Frankly, I don’t know what brings on the anti-Rattner chill here from the Detroit journalists.  Rattner, despite his evident Wall Street snobbery and disdain for Detroit, did this town immeasurable service.  This town and region–and the million plus employees who depend on it–was between a rock and a hard place. Steve Rattner, however naive and self-boasting, led us through.  His results betray all criticism.

    • 0 avatar
      ghentForever

      I agree with you.

    • 0 avatar
      rocketrodeo

      Can’t agree more.

    • 0 avatar
      Daanii2

      This town and region–and the million plus employees who depend on it–was between a rock and a hard place. Steve Rattner, however naive and self-boasting, led us through.  His results betray all criticism.

      The whole country was in trouble. Millions lost their jobs. Millions lost their retirement money. Why should we all have to pay the people in Detroit, who had long been favored by economic factors, to save them. Why should you be chosen from among all those in trouble, at the expense of everyone else?

      It’s like those people who are seeking to have the government pay their mortgages. They say that they need to save their houses. Why should we all pay to save their houses? Shouldn’t they be responsible for putting their houses at risk?

      Steve Rattner got results? Sure, by throwing billions of money at the problem. Not hard to do. Not hard at all.

    • 0 avatar

      I don’t think that Rattner did anything that any competent bankruptcy manager wouldn’t have done, in terms of restructuring the company.
      Here’s what I know. I know that Rattner was at the 2010 NAIAS chatting it up with Sergio Marchionne and others, wearing credentials assigned to General Motors, about 6 months after he supposedly left the government’s employ as head of the PTFOA. Supposedly Rattner had left the task force in July of ’09 after all the heavy lifting on the bankruptcy was done. His successor’s name escapes me at the moment but it’s interesting that it was Rattner and not his successor who was sashaying around Cobo last January. When I contacted the Treasury Dept about the NAIAS last year, they claimed that none of their employees would be attending. I was never able to find out in what capacity Rattner was at the show.
      I do think it’s interesting that when Henry Ford II took over FoMoCo, the financial experts he brought in were astounded at how crudely Henry the elder ran the company. Henry Ford didn’t like accountants and he ran Ford like a feudal lord. In contrast, GM was for most of its history the model of modern corporate bureaucracy but it seems like it was so bureaucratic that it couldn’t even keep track of its own money.
      Bob Lutz joked at the Volt launch event that his upcoming memoirs would be titled “The Car Guys vs. The Bean Counters”, and car enthusiasts have long bemoaned the green eye shade (how’s that for an anachronism?) types and the other suits who really have run the car companies. Looking at Rattner’s account it seems as though the bean counters couldn’t even keep the beans counted accurately.

    • 0 avatar
      Detroit-X

      To me, the fact that Rattner is an outsider is a MAJOR plus. After all, the incompetent, inbred, Detroit executives do nothing till they are forced to, and this time, they didn’t have the time (although I’m sure they all had a Powerpoint presentations that said otherwise).

      Detroit automakers have lasted this long on the backs of their lowest-level employees, who scramble to fix all the stupid mistakes the executives have thrown at them, time after time, under a “Culture Of Fear,” no less. From that angle, the Detroit-3 have amazing talent and dedication.

    • 0 avatar
      Telegraph Road

      incompetent, inbred, Detroit executive

      Speaking as an incompetent, inbred, Detroit executive (or middle manager, I guess),  Detroit needs outsiders.  Mulally is exhibit one.

  • avatar
    Steinweg

    Did you read Malcom Gladwell’s Nov 1, 2010 review of Rattner’s book in the New Yorker? He also took the stuffing out of Rattner and mounted an overdue defense of Rick Wagoner. But my main reason for not wanting to read Rattner’s book is… booooring! There’s so many better books to read, written by actual writers about interesting topics.

    • 0 avatar

      Meant to, but haven’t yet. Might still have it around the house somewhere.

    • 0 avatar
      Daanii2

      I greatly enjoyed Malcolm Gladwell’s review of Rattner’s book in the New Yorker. I thought it was spot on. You can find it at http://www.newyorker.com/arts/critics/books/2010/11/01/101101crbo_books_gladwell
       
      Of course Rattner is a hero in Detroit. He and others brought $100 billion into Detroit. If you live in that area, you get to share in that money. If you don’t, as I don’t, you don’t get to share in the money. You get to share in paying it.

      As for the bailout of GM and Chrysler, I thought the funneling of stock in both companies to the United Autoworkers was criminal. And I don’t say that lightly.

    • 0 avatar
      bomberpete

      I read Gladwell’s review and thought it had too much superficiality and conventional thinking:
      http://www.newyorker.com/magazine/letters/2010/11/22/101122mama_mail4

      There’s a longer version where I call Rattner a self-aggrandizing weasel, but they (wisely) edited it down and the result is classier.I appreciate Dannii’s perspective, but let’s agree to disagree.

  • avatar
    Telegraph Road

    Steve Rattner is a hero in Detroit, no less than former Lexus-driving Alan Mullaly.

  • avatar
    Detroit-X

    John McElroy puts out these 20 second auto-industry sound-bites on the radio.  With his shrill voice rising and falling, the effect is some sort of unintended self-parody. He’ll say such heady-stuff like: “Friction is the enemy of fuel economy!!!” “The more you can keep from stopping, the farther you will go!!!”  “The 2010 Focus is out, and boy does it have shiny paint!!!” Whew.

    • 0 avatar
      Robert.Walter

      Exactly.  It has been nearly 10 years since I have heard/seen him on AM/TV, and I’m glad … When he was in print, many years before, I thought that was good, but after he moved to the airwaves, I found him to be an imbearable ponce.

    • 0 avatar

      John’s a nice guy. He’s just trying to make a living and he does happen to know the car biz. I’m sure that I’d sound like a pompous fool if someone paid me to talk on air.

    • 0 avatar
      Detroit-X

      I just simply pointed out my observations of having to endure these Detroit radio spots, over and over and over and over. Good for him if he can only recite Chapter 1 of “How Cars Work” for years and earn a living, but this is Detroit of all places, and most people here are born knowing Chapter 1.  Also, I’m not saying he isn’t a nice guy, but the way he has spoke of Rattner certainly doesn’t dovetail with that description.

    • 0 avatar
      Robert.Walter

      It’s not that I begrudge him being a nice guy, I have nothing against nice guys, it’s that so often the style seems to just graze the surface of an issue, making less for automotive journalism and more for milquetoast moderation.  I’m not looking for confrontation, just more independence and less of seeming like a direct channel out of an OEM’s PR Dept.

      I also understand what I’m asking for is not easy, the shorter spots on the radio don’t really support this, but how the longer spots on the TV (don’t know if the PBS show still exists) might have, and I understand as well as how the striving for independence can bump up against the desire to earn a living.

      Could just be that he has found a good niche to populate and while it fills the needs of enough listeners and viewers, it just doesn’t resonate with me.

  • avatar
    tomLU86

    A friend loaned me a copy and I’m reading it.  As I read it, I’m mindful that these “accounts” are Rattner’s interpretations, and also that Rattner is not exactly a model of integrity—he may not be a convicted felon, but why then did he pay New York $5 or $10 million?  How did he come to acquire such a vast sum of money?  By being a productive member of society, or one of the 0.01% of money manipulators who have driven America to the abyss?

    Also, someone with Rattner’s resume can take liberties with the truth and get away with it, which he does a few times.  For example,  GM, unlike Ford and Chrysler, was not “bleeding red ink” in the late 70s–it was profitable.  Their first loss was in the early 80s recession.  But liberties with the truth like that help portray Rattner and his group as necessary and important in fixing our wayward auto industry.

    Also, Rattner’s admiration of Corker is a little overdone.  Corker also represents Nissan and the south.  The southern states have subsidized the transplants–I recall reading that Alabama gave an estimated $200,000 per job created for infrastructure improvements.  Georgia gave Hyundai & Kia enticements to build there plant, but would not give Ford or GM any meaningful breaks for them to keep their plants open–and when GMs plant opened in the late 1940s, I’m sure all they got as a ribbon cutting with little tangible support.  It was in GM’s private interest and welcomed by Georgia –that’s it.  So, not only are foreign carmakers subsidized by their govts,they are also subsidized by state govts here–wonderful!

    Rattner also speaks highly of the Gettelfinger and the UAW.  From all that I’ve read, there’s much to admire about Gettelfinger.  I haven’t seen anything yet about how the UAW will resolve the conflict between being an owner (who wants lower costs so the stock will go up and enrich FORMER workers and save their benefits) vs representing today’s workers (who want more compensation, as we all do). It will be interesting, to say the least, the leadership vs the rank and file. Rattner does allude to Ford workers voting down the proposed contract.

    Rattner dismisses Wagoner for not developing a bankruptcy plan.  Yet Wagoner was right–no one will buy a car from a bankrupt car company.   GM’s bankruptcy had the Federal Govt behind it–this is a huge ‘detail’.   Rattner should ask why Wagoner didn’t think of a govt-supported bankruptcy.  Was it because Wagoner felt he would lose his perch, his lack of imagination, or perhaps something else?

    I do agree with Rattner’s contention that the big stick of bankruptcy was needed to get the stakeholders to make meaningful concessions.  Rattner artfully dodges the question of why unions got a better deal than bondholders, or the ethics or morality of circumventing US bankruptcy law, and the effect that may have on future bondholders willingness to finance companies.  Then again, based on his recent $10 million settlement, perhaps that’s just as well.

    Any establishment figure, especially a Democrat, is unlikely to offer alternative views of why the domestic auto industry was, and I think still is, in such precarious shape.  Some key culprits are very politically incorrect.  The Japanese established their beachhead in our generous market by being subsidized and supported by the Japanese govt (that VAT), being incubated in a protected market, possibly dumping product, and not having to contend with those pesky OSHA regulations and federal and state laws which made organized labor such an issue for the American.   On top of that, the US government, with high income taxes on profits (compared to Japan & Korea) as well as income taxes vs consumption taxes (on the labor end) put the US companies at a disadvantage.  Furthermore, in the wake of the 1973 oil embargo, instead of meaningful legislation to curb the use of oil, in the form of gas taxes, the govt gave us CAFE.   Because most of Detroit customers would not consider a small ‘domestic’, the big car became the SUV.  Had we been forced to pay higher prices for gas, the domestic manufacturer would be forced to build more efficient cars and would not be at such a disadvantage compared to the imports. So today, we find ourselves staring into a potential abyss of expensive, non-available gasoline (think of an attack to destroy Iran’s real or imagined nukes) and unable to crank out large quantities of economic vehicles domestically.

    Rattner does not mention how onerous the US govt has made the manufacturing and sale of automobiles.  It is impossible today for new entrants to come in, as Honda and the revived BMW did in the 1960s and even Hyundai did in the 1980s.  If the only thing the govt regulated was tailpipe emissions (we all must breathe the air after all), the consumer would be better off.  As people increasingly struggle to make ends meet, the govt has made it impossible to buy new, reliable basic transportation.  As the price of oil rises, the products the Americans still depend on excessively will lose favor, yet people will be unable to replace their Grand Cherokees and Silverados because of the high cost of a new car.

    The Corkers of the world think it’s OK–we can just by with Japanese and Korean transplants.  However, they answer to Japanese and Korean investors.   The flow of the profits to them will further impoverish America.  And the increasing impoverishment of America will make it less worth the effort for the Japanese and Koreans to give us their best.

    Rattner praised Mullaly effusively.  Indeed, Mullally deserves much credit.  But, two of the most important Ford products come from Mexico–the Fusion and Fiesta.  So, while Ford’s profits may be up, what is the point of domestic taxpayers saving the domestic industry if many of its more relevant products are made by non-Americans?  If, or perhaps when, gas goes to $4 or $5 per gallon, Mexican will work overtime while Americans are laid off.  Nice.

    On the other hand, as Mr. Karesh notes, the book contains many truths about Detroit car culture, as well as many ‘revelations I found interesting.  Such as the fact GM did not know, or significantly understated how much cash assistance it needed.  I certainly would have imagined that the CFO and CEO would know.  I also found the sections about Chrysler interesting and the debate as to whether Chrysler’s demise might help assure the future of Ford and GM.

    He’s also right about the bureacracy, at least at GM.  And his point that the CEO and Chairman of the Board should not be the same person is well taken.  However, here again, the elite like each other, so when a prospective CEO, like Whitacre or Akerson insists on being Chairman, well there you have it.

    So, in the end, I really liked Mr. Karesh’s assessment of the book, it is an interesting book, and as with all books, it is prudent to consider the source.

    • 0 avatar
      rnc

      GM was bleeding red ink, just hiding it in the balance sheet, there’s a reason they had to take a $38 billion charge for unfunded healthcare liabilities when Ford did not.  GM was trying to run from the future it just finally caught up.

    • 0 avatar
      Telegraph Road

      But, two of the most important Ford products come from Mexico–the Fusion and Fiesta.  So, while Ford’s profits may be up, what is the point of domestic taxpayers saving the domestic industry if many of its more relevant products are made by non-Americans?

      Although Ford imports the Fusion/MKZ and Fiesta into the U.S. from Mexico, it also exports every other model from U.S. and Canadian plants into Mexico.   Car haulers cross the Rio Grande in both directions.

    • 0 avatar
      Kendahl

      “Had we been forced to pay higher prices for gas, the domestic manufacturer would be forced to build more efficient cars…
       
      I think they would have been happy to build more efficient cars because there would have been a market for them. Remember that, when gas prices went up three years ago, people dumped perfectly serviceable SUVs and paid exorbitant prices for worn out Geo Metros.

    • 0 avatar
      asapuntz

      > The Japanese established their beachhead in our generous market … being incubated in a protected market
      The US _is_ a protected market. Our economic conditions and homologation rules are quite unique. The JDM is completely different, and their automakers didn’t make serious inroads until the energy crises of the 70s, followed by US-specific designs.
      Discounting petro-states, how many US-designed vehicles have sold outside the US?
      > two of the most important Ford products come from Mexico–the Fusion and Fiesta
      Since domestic small-car designs are rarely competitive, they have to be based on European ones. Those are designed to a higher price point, so it’s either cheap labor or de-contenting that’s going to make them viable here.

  • avatar

    Rattner should be in jail, Obama is a puppet, the UAW is a bought and paid for servant of mgt, and Wagoner should be subjected to capital punishment. the story we get is false, the truth may never be told. the public is stupid and the banks have gotten away with the crime of the century.

  • avatar
    Dave M.

    Frankly, I don’t know what brings on the anti-Rattner chill here from the Detroit journalists.
    Because he was the outsider who had to step in to fix their house.  After viewing a few McElroy internet podcasts, I ran into the suckfest episode with DeLorenzo and Farago.  I finished it with my mouth agape – while perhaps Farago could have taken some of the edge off his bulldog tenacity, DeLorenzo was acting like a 5 year old drama queen, and McElroy played no part in keeping the conversation going besides guiding a gangup on the ‘outsider’s’ (Farago) view.
    McElroy is nothing more than a blinders-on Detroit cheerleader, and its that view (or lack of) that got Detroit to the abyss.
     
    Tom LU86, what a great analysis.  I can’t agree with the collusion ideas that took Detroit down (government, foreign country manipulation, etc), but you bring up many possibilities.
     
    As a relatively simplistic person, to me it all boils down to one item – Detroit took their eyes off the ball, and played us for stupid.  They had complete domination of the American market….successful compact launches (Falcon, Chevy II, Valiant), created quite a few new genres (pony car, minivan), and were home to the top auto engineering corps in the world.
     
    And through generation after generation of shitty, half baked products, they drove us away.
     
    I’m very pleased that the transplants are expanding here, and plan to make my next new car a US-made vehicle so I help employ other Americans who make superior products.

    • 0 avatar

      Fair assessment of Farago’s appearance on the show. RF actually behaved better than I expected, especially considering the ambush, while the behavior of Vines and DeLorenzo was disgraceful. They’re essentially co-hosts of the show. You don’t invite someone into your place then act as if you wish they weren’t there.

  • avatar
    Telegraph Road

    Michael–I’ve read many reviews of Overhaul, but I think yours is the best yet. You are as good a writer as you are a statistician (my own trade).

  • avatar
    tparkit

    “Rattner was and remains an outsider… No one likes being told what to do by an outsider… Worse than being an ignorant outsider… Adding insult to injury, this unlikable outsider”

    Completely inaccurate. Rattner was an insider, in the only place that matters: Wall Street, the recipient over the past couple of years of heretofor unimaginable returns on the Street’s political investments. Further, to the Obama administration, there is no auto industry per se. There is only a political vehicle, and political considerations. Said another way, there is no there there for Rattner to be an outsider to. Only the political has reality.

    “We’ve heard a lot about how badly bondholders were treated, but Rattner convincingly argues that they’ve actually received more than they should have. If the companies had liquidated, debt holders would have received very little, perhaps even nothing in the case of GM’s bondholders. Only the government’s desire to save the companies from liquidation gave them any reason to expect more.”

    I hope we’ve heard enough of this red herring. GM was not going to be liquidated. A true bankruptcy (which neither GM nor Chrysler experienced) is not identical with liquidation. The bondholders were disenfranchised via extralegal means, and in a manner that does lasting damage to the nation’s investment climate and respect for law. One hopes the players in the auto industry are learning from this and other recent experiences. If so, we will never again see something so bone-stupid as Toyota’s attempt to buy long-term protection by going partners with the UAW/GM axis at NUMMI.

    • 0 avatar
      MikeAR

      Best post yet, Rattner is the consumate insider. Always remember that if someone cheats and lies in one part of their business or life they will do it in every part. Rattner ought to be bankrupted and in prison but he is too well connected and will continue to prosper after his little token slap on the wrist. His word means nothing and the book is a giant lie to make himself and his masters look better.

    • 0 avatar
      silverkris

      “we will never again see something so bone-stupid as Toyota’s attempt to buy long-term protection by going partners with the UAW/GM axis at NUMMI.”

      You have to put this in context.  Remember, the NUMMI operation was conceived way back in the early 1980s, when there was a lot of conflict over trade issues between the US and Japan.   It also predates Toyota’s other manufacturing facilities, such as Georgetown, KY.

      History says that just about all the parties involved – Toyota, GM, and the UAW autoworkers, benefited and learned from working on the NUMMI project.  Toyota better learned about how to operate a manufacturing operation in the USA – which led to its own wholly-owned factories.  GM also got to find out more about Japanese manufacturing and quality practices (though I think they didn’t use that opportunity to the fullest, they should have done more transfers of NUMMI veterans to other GM plants to spread the knowledge more).  The autoworkers also learned best practices in vehicle manufacturing and showed that the much-maligned American autoworker could produce vehicles that matched or exceeded Japanese levels of quality. 

      So, despite its closure, NUMMI in general was a great success for over 20 years. 

  • avatar
    PeteMoran

    I’ll be reading it, when I’m finished with my current (and more important) list.
     
    That Rattner has financial baggage should not be surprising; I doubt there’s a clown in Wall Street who couldn’t be locked away for decades if the will existed to pursue what has gone on there.
     
    Rescuing GM/Chrysler was based on the very poor economic timing of a failure and the unprovable assertion that letting them fail would have brought the whole industry to it’s knees.
     
    Michael K, I wonder if the second part of the above is discussed at all??

    • 0 avatar

      I’m not sure what you’re asking. Rattner clearly believes that letting GM go under would have badly impacted an already awful economy. He remains ambivalent about the wisdom of saving Chrysler, saying that he was 51/49 for doing it.

    • 0 avatar
      Jimal

      Unprovable, but sometimes you have to go on a hunch. I know that won’t be a popular stance, but unless you know that someone was going to either buy the assets, take over production or otherwise pick up the employment slack for displaced workers, it is easier for me to believe the scenario where an uncontrolled failure of GM wouldn’t have been disastrous for the economy, at at time where the economy was in no position to absorb that kind of a hit.
       
      I have yet to hear a realistic scenario (not based on a philosophy or a want to see GM fail) where GM going C7 and shutting down wouldn’t have further decimated an already staggered economy, or better yet, have helped steady the staggered economy.

    • 0 avatar
      Daanii2

      I don’t think anyone thought of shutting down GM and selling its assets in a Chapter 7 bankruptcy. GM was, and is, a valuable company. A Chapter 11 bankruptcy would have been likely.
       
      That’s what I wish had been done. Instead of George Bush using TARP money as a discretionary fund, and then Barack Obama going further and nationalizing GM and Chrysler, I would have liked to see GM and Chrysler make their own way through their troubles.
       
      Just as every other company in the United States has had to do. Until now.

    • 0 avatar
      Jimal

      I think there were more than a few voices – and not just here on TTAC – that were hoping for a C7 bankruptcy. For others like myself, the situation at GM was grim enough that given the overall poor condition of the economy, any attempt at a C11 reorg would have ultimately ended up with a C7 closure and liquidation, with the cascading effect through the supply and sales chains.

    • 0 avatar
      MikeAR

      Jimal you are wrong, those of us who thought that there should have been a bankruptcy actually know the difference between chapters and believed that there wouldn’t have been a liquidation but a new GM operating without its union contracts with new, competent management. By your fear-mongering about a Chapter 7, you prove that you didn’t care about anything but saving the UAW and government control of a private company. You have noting to fall back upon but straw-man arguements. You can’t stand on your ideas so you have to resort to that.

    • 0 avatar
      Jimal

      MikeAR, it is ironic that you bring up the straw man and that you’re accusing me of using it when in fact you’ve filled this thread with various versions of it. You personally attack by telling others they are personally attacking (the “I’m rubber, you’re glue” tactic) without bringing any substance to your argument. Before attempting this high school debate club ploy on me, please note that:
       
      1. My comments are based on being involved in the conversations for several years here on TTAC. If you go back and look through threads after several stories on the topic, in particular in the GM Deathwatch series or the excellent financial analysis by the guy who wouldn’t/couldn’t divulge his name (I’m sorry, I can’t remember the name of the series of articles) you will see that there are several voices here who literally wanted to GM go down, as in be liquidated. The differences between C11 and C7 have been discussed ad nauseum. There are people on here who would not only predicted that a GM C11 reorganization would ultimately result in a C7 liquidation, they are still predicting it (I would almost say that Farago was rooting for it, but I can’t substantiate that so I won’t). Those seem to be the among loudest voices against the bailout, which threw a monkey wrench into their predictions.

      2. Based on following those discussions (and occasionally chiming in) as well as paying attention to the news and the greater debate on the topic, I believe the scenario I described was very possible given the larger economic picture at the time. Asking for scenarios where the scenario I described wouldn’t have been the case or how if it had been the case how the economy would have been better off for it is not fear mongering. It is posing a legitimate question.

      3. I defy you to find one post anywhere on TTAC where I have EVER said anything positive about the UAW. Ever.

      4. Same challenge, but this time of me describing support of government control of a private company (i.e. nationalization).

      I will admit to having a soft spot for GM. My father is a GMI grad who worked for one of their divisions for a long time. I grew up around GM. I’ve also witnessed as year after year, my father, a salaried (non UAW) retiree, has had his benefits reduced or outright eliminated by the company. I haven’t owned a GM product since I had a used ’91 Camaro about 10 years ago. I didn’t own stock in the old GM (though my father did) and I don’t currently own stock in the new GM. In other words I don’t have that much skin in the game to taint my opinion and haven’t for about 10 years. So please, save your canned sanctimony for someone else.

    • 0 avatar
      psarhjinian

      I don’t think anyone thought of shutting down GM and selling its assets in a Chapter 7 bankruptcy. GM was, and is, a valuable company. A Chapter 11 bankruptcy would have been likely.

      Not necessarily.  Remember the economic climate at the time—specifically the credit crunch.  It was difficult for companies with sound business models and real assets to access credit.  Does anyone think that GM or Chrysler (both saddled with zero cash, lots of debt,  lots of fixed- and high-cost operations, more agile competitors, no real strategy and weak consumer demand) would have been able to secure so much as a home-renovation loan, let alone the kind of capital required to run an automaker?  Remember that Cerberus, the crown-prince of that kind of operation, was actively bailing on Chrysler.

      The government knew how weak they were, and they knew that any bankruptcy proceeding would go C7 as soon as prospective buyers failed to turn up and they would certainly have failed to show up.  Anything worth anything would have been sold fire-sale to BRIC oligarchs and, yes, those poor little bondholders would have been left with what amounts to historical curiosities.

      This is why the companies were “stolen for the UAW”: the union** was pretty much the only buyer; the only entity who would accept equity and agree to not hock them to, say, the Chinese.

      ** that FIAT was willing to participate tells you everything you need to know about how desperate FIAT was.  The Chrysler tie-up is the last chance for both of them and they know it.  If it fails, they’re both going to be pulled apart like carrion by vultures.

    • 0 avatar
      Tommy Boy

      I don’t buy the “a Chapter 11 reorganization would have turned into a Chapter 7 liquidation” rationalization for what happened.
       
      First of all, if the government “needed” to be involved at all, it could have served as guarantor of “debtor in possession” financing, and then lenders would have been falling all over themselves to provide essentially risk-free financing … all while enabling a real Chapter 11 reorganization from which the companies could have emerged as real competitors.
       
      What we actually got was a bailout of the UAW, motivated 100% by politics.  In a real Chapter 11 the UAW wouldn’t have ended up with ownership interests in the companies; the pensions would have gone to the PBGC and (presumably) frozen with no new pension accruals for remaining employees; and significant contract / work rule concessions that would be imposed by a bankruptcy court.  In turn, Ford would have demanded similar concessions, and if it didn’t get them, would itself would have pursued Chapter 11 to get them.
       
      So we now have the UAW as part-owners, unfunded pension liabilities remaining in place, and watered-down contract concessions.  In other words, all three Detroit companies got a temporary respite, but still aren’t (and won’t be) truly competitive, and this temporary respite cost tens of billions (if not hundreds of billions if you count GM’s tax loss carry forwards), with money effectively borrowed from China, with the bill for principal and interest sent to hapless U.S. taxpayers (many not yet born).
       
      Because they still aren’t (and can’t be) truly competitive, and the UAW is already talking about “getting back” what it “lost,” the GM-Ford-Chrysler trio is going to be right back into “crisis” some years down the road, and our taxpayers dollars up in smoke.
       
      This is why I never intend to again purchase any vehicle assembled by the UAW … as far as the UAW is concerned, I’m already “giving at the office.”

    • 0 avatar
      Jimal

      Tommy Boy,
      When you say, “I don’t buy the “a Chapter 11 reorganization would have turned into a Chapter 7 liquidation” rationalization for what happened.” are you saying that you don’t think a C11 would have led to C7, or are you saying you don’t agree with the government using this as an argument to intervene?

    • 0 avatar
      bradbn

      First of all, if the government “needed” to be involved at all, it could have served as guarantor of “debtor in possession” financing, and then lenders would have been falling all over themselves to provide essentially risk-free financing … all while enabling a real Chapter 11 reorganization from which the companies could have emerged as real competitors.
       
      @Tommy Boy — indeed, I agree.  It would certainly have been preferable for us, as taxpayers, to bear the risk of default under a DIP, while letting private lenders enjoy the profits!  I remember well those days in late 2008 and 2009.  Banks were falling all over themselves to extend credit.  Well, the banks that weren’t failing themselves, at any rate.

    • 0 avatar
      Telegraph Road

      Chapter 7 would have led to Chapter 11–absolutely.  (I don’t work for GM or any of its suppliers.)

    • 0 avatar
      PeteMoran

      @ Michael Karesh
       
      I’m not sure what you’re asking.
       
      I guess I’m asking if there is argument/discussion about any work done on the alternative to rescuing GM/Chrysler? I fully understand one of the issues was the pure timing of a failure given the state of the economy, but from the restructure point-of-view were other alternatives discussed and/or did they believe the unprovable spin (from CAR particularly) that the supply chain would fail?
       
      I for one, know that while Toyota were publicly supporting a rescue, they were privately running around to suppliers ensuring supplier finances were such that supply would continue uninterrupted. They were also discussing what they could/would do should such suppliers come under restructure pressure themselves.
       
      As a last comment regarding access to DP finance;
      You may recall that during committee hearings, one of the things agreed on all sides was that the Government would likely have to provide DP finance. I don’t think there was a serious problem as to where that money would come from even if the banks weren’t players.
       
      My interest in the method of re-organisation is the unwavering support of halt’n’catch’fire Ch11 and what it has not done for the larger populace of Michigan (for example). They’re still dependant on a pair of poorly structured, unlikely organisations in GM/Chrysler.

    • 0 avatar
      Jimal

      @Telegraph Road, did you mean Chapter 11 would lead to Chapter 7?

    • 0 avatar
      Educator(of teachers)Dan

      (sarcasm on) Yes those are both cross streets off of Telegraph Road.  (sarcasm off)

    • 0 avatar
      Tommy Boy

      >>Tommy Boy, When you say, “I don’t buy the “a Chapter 11 reorganization would have turned into a Chapter 7 liquidation” rationalization for what happened.” are you saying that you don’t think a C11 would have led to C7, or are you saying you don’t agree with the government using this as an argument to intervene?

      Jimal,

      Both, actually.  Some have been posting that a Ch. 11 would have inevitably turned into a Ch. 7, and I don’t buy that.

      I also don’t buy the gov’t spin about “saving” the auto industry / that but-for the bailout as engineered by the Obama administration GM / Chry would have gone away, the supply chain would have gone away, and that unemployment would have increased by seven-figures.

      As I said, the gov’t could have acted as guarantor for debtor-in-possession financing, and both companies could have gone through an un-politicized Ch. 11 — and would have emerged stronger than they are now, while the UAW would have emerged with far greater scars and weaker than it is now.  We know which course the government pursued, and the outcomes tell us why the gov’t chose the course it did — it upended established bankruptcy law in order to provide a sweetheart “Ch. 11″ favoring the UAW’s interests.

      Note too that it recently emerged that Ford also got a bailout, in the form of billions of dollars not from TARP, but directly from the Federal Reserve.
       
       

    • 0 avatar
      Robert.Walter

      “In turn, Ford would have demanded similar concessions, and if it didn’t get them, would itself would have pursued Chapter 11 to get them.”

      TommyBoy, it is with the above statement that you demonstrate how little you really know (or understand) about the subject at hand.

  • avatar
    asapuntz

    well, i hope i’m not triple-posting. tried to reply to the tomLU86 (2x), but it didn’t seem to take, so here’s my last try …
     

    >The Japanese established their beachhead in our generous market … being incubated in a protected market
    The US _is_ a protected market. Our economic conditions and homologation rules are quite unique. The JDM is completely different, and their automakers didn’t make serious inroads until the energy crises of the 70s, followed by US-specific designs.
    Discounting petro-states, how many US-designed vehicles have sold outside the US?
    > two of the most important Ford products come from Mexico–the Fusion and Fiesta
    Since domestic small-car designs are rarely competitive, they have to be based on European ones. Those are designed to a higher price point, so it’s either cheap labor or de-contenting that’s going to make them viable here.

  • avatar
    ExPatBrit

    Gotta agree Psarhjinian.
    Some people have short memories.
    Chapter 11 requires DIP (Debtor In Possession ) financing, this would be typically supplied by a Bank or consortium of Banks.
    At that specific time the big banks were teetering on the brink. Chapter 7 was the only option and there were no other options since GM had no cash to run their business.
    GM and Chrysler as a business along with all their suppliers would be done. They would be auctioning off assets and stripping the factories  like a bigger version of the  Rover UK bankruptcy .
    All that hardware would be up and running in China or India by now.
     
     
     
     
     

    • 0 avatar
      MikeAR

      Wrong, the problems of the secured creditors would have made a DIP bankruptcy more likely. A liquidation would have meant an immediate writedown to basically zero of their entire exposure to GM. That would have been more than some institutions could have taken without major hits to assets and shareholder value. DIP loans to GM would have been senior secured loans that would have bought time to break the union and replace old management with new capable management. The bailout was 100% a union payoff for their money and votes. Editing just because I remembered the old axiom: if you owe a little to the bank it controls you, if you owe a lot you control it. GM owed a lot and had the leverage to be sure its creditors would have been motivated to see it survive.

    • 0 avatar
      Jimal

      Under normal circumstances you are probably correct. However the economic conditions at the time that a decision was to be made, GM was insolvent and the banking system was so out of whack that banks simply weren’t loaning.
       
      Once you get beyond the philosophical and rhetorical objections to the government bailout, the real technical fear was/is that the government was flushing money down a hole and would never recover that investment. Why would a bank or any other financial institution with profits to make and shareholders to satisfy ever want to take that risk under normal circumstances, let alone in the middle of an economic meltdown?

    • 0 avatar
      Telegraph Road

      DIP loans for GM were impossible then.  The financial crisis was in full force.

  • avatar
    ExPatBrit

    MikeAR, you are wrong. DIP financing was off the table in the fall of 2008.
    The amount of money was beyond the scope any individual or bank.
    It was “game over”.
    GM is  a global company, gone are the days of the Ford Rouge plant where raw materials arrived at one end and completed vehicles come out the other. There is a not a single GM plant worldwide that can build an entire vehicle from scratch.
    It you remove any one of the GM factories or suppliers it will take a production line somewhere else down.
     
     
     
     
     

    • 0 avatar
      Dimwit

      An important point. Everybody is focussed on GM, GM, GM when it should be Industry. GM became a keystone. If it went so did everything else in North America and that scenario was presuasive enough that several governments bought in to it. Those governments weren’t saving GM but a whole industry from collapsing. Fingers in the dike time. And it worked. Cascade averted.

      Did some benefit unnecessarily? Yes, but probably fewer than might be expected. Certainly a lot fewer than in the Banking industry. Could there have been better solutions? Sure in hindsight. But it’s always the same thing. You do the best you can, the fastest you can with what you know at the moment you know it. Hindsight is always 20/20 and in this case, the decisions made don’t look like a disaster to me.

  • avatar

    Michael,
    Thanks for such a thoughtful and well-written review. If I read the book, it will be because of your review.

    • 0 avatar
      DC Bruce

      +1 on that comment.
      The discussion in the thread is interesting, but overlooks the real situation — a kind of “perfect storm.”  That is, there was a financial collapse concurrent with the failure of two very large business enterprises.  A chapter 11 restructuring might have been possible in a normal financial environment, where a coalition of banks could have been assembled to provided the needed DIP financing to keep the company going during the restructuring.  That wasn’t possible in 2008; the only possible source of DIP financing was the US Government; and, I expect, the political types felt that, if they were going to use public money (and assume a risk of loss) then they were going to have a big say in the ultimate outcome.
      The scale of GM and ChryCo’s insolvency, relative to what the private credit markets could deliver,  was simply unprecedented in everyone’s experience.  So, there was no playbook on the shelf to follow.  (The same was true of the financial industry.)  The stew of problems — economic, financial, political, moral — facing the players was unique.  Quite frankly, all that anyone has a right to expect under such circumstances is that the players behave in a relatively disinterested fashion — which, I gather from Michael’s review of Rattner’s book — they did.  To expect them to be “right” is unreasonable, where no one really knows what “right” is, even now.
      I’m not minimizing the moral hazard created by the government’s bailout, or the significant question of whether creditors will ever lend to these companies in the future without pricing in the risk that, notwithstanding security agreements, they will take a big haircut in the event of default.
      But it is possible for the system to throw up “one time only” decisions.  A good example is the Supreme Court’s 2000  Bush v. Gore opinion.  At the time, people rightly complained about the Court’s creating a kind of moral hazard for elections.  Yet, subsequent experience has shown the Court (and inferior federal courts generally) to have narrowly circumscribed the precedential effect (“confined to its facts”) of the decision, even in a system that is built entirely on precedent.
      So, that’s my hope for these bailouts: that they are a one-time only phenmonenon.  Moreover, anyone with any experience in dealing with the government understands the “camel’s nose” problem: one you let the camel’s nose under the tent, it’s hard to keep the whole camel from coming in.  So, the financial industry is getting a slew of regulations along with its bailout.  That isn’t welcome, and they probably haven’t seen the end of it.

    • 0 avatar
      geozinger

      @DCBruce: I think the only thing that I would add to your assessment here is that there will be no tolerance of another bailout. Even among domestic supporters the bailouts could be considered an unusual event, and not to be repeated again anytime soon. If that happens, I would imagine that even the most ardent of supporters will not stand for another bailout, and live with the consequences.

  • avatar
    silverkris

    Another book that I’ve read is At the Crossroads: Middle America and the Battle to Save the Auto Industry, by Abe Aemidor and Ted Evanoff.  It’s written from the standpoint of several communities in Indiana – autoworkers, local governments, some companies, so it adds a different dimension from Wall Street and the Federal Government.  I found it very interesting – about how some small town mayors who are trying to adjust to the large economic forces affecting their communities. 

    What struck me greatly about the book was that they brought up a really good point – whether you like or didn’t like the Federal assistance to the automobile industry, there was no grand plan or design for American industrial policy in the future, seems like the US government is being reactive and just trying do a band aid to save the industry.  Yeah, I know industrial policy sounds like a dirty word for adherants of laissez faire capitalism, but maybe we need to revisit that.

  • avatar
    bomberpete

    Ditto. Thank you for a great review, Mr. Karesh. I offered to do one for Mr. Niedermeyer, but reading yours I can only say you did a much better than I could have.
     
    “The truth? You can’t handle the truth.”For all their big talk and criticism, McElroy (and Sweet Pete DeLorenzo) are really just Detroit apologists and a–kissers at heart. Otherwise, they wouldn’t be so scared of a twerp like Rattner at the DEC. Sweet Pete in particular is long overdue for an ass-whupping, but I suspect ignoring him is the better strategy.
     
    And at this point, Buickman’s once sensible comments are no longer valid. He’s just plain nuts.
     
     
     


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