Secrets Of The Bailout

Edward Niedermeyer
by Edward Niedermeyer
secrets of the bailout

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 isFuck the UAWOf 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 ridiculousGM’s spokesfolks tell the DetNThe 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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2 of 39 comments
  • DC Bruce DC Bruce on Sep 07, 2010

    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.

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