Given GM's attempt to ruin Thanksgiving with nationally-televised bailout lies and sacrilegious comparisons to Evel Knievel, we are reposting this story. It explores the truth behind GM's management miracle.
Car czar Rattner says he was 'stunned by the incompetence of GM's management' and that financial controls within the automaker were the worst he's ever seen. Details plus a short CNN clip of Rattner annihilation.
On Management Incompetence Inside GM
- Everyone knew Detroit's reputation for insular, slow-moving cultures. Even by that low standard, I was shocked by the stunningly poor management that we found, particularly at GM, where we encountered, among other things, perhaps the weakest finance operation any of us had ever seen in a major company.
- For example, under the previous administration's loan agreements, Treasury was to approve every GM transaction of more than $100 million that was outside of the normal course. From my first day at Treasury, PowerPoint decks would arrive from GM (we quickly concluded that no decision seemed to be made at GM without one) requesting approvals. We were appalled by the absence of sound analysis provided to justify these expenditures.
- The cultural deficiencies were equally stunning. At GM's Renaissance Center headquarters, the top brass were sequestered on the uppermost floor, behind locked and guarded glass doors. Executives housed on that floor had elevator cards that allowed them to descend to their private garage without stopping at any of the intervening floors (no mixing with the drones).
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CNN Video: Steven Rattner 'Why I Fired GM's CEO'
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From CNN Fortune
A Close Call on Chrysler
- While we had separate teams working on Chrysler and GM from the start, the first and toughest decision that we faced was what to do with Chrysler.
- Badly run after Daimler bought it in 1998, Chrysler had been sold nine years later at the peak of private equity mania to Cerberus Capital Management. Larded up with debt, hollowed out by years of mismanagement, Chrysler under Cerberus never had a chance. We marveled, for example, that Chrysler did not have a single car that was recommended by Consumer Reports.
- The question for us -- and ultimately, the President -- was whether any restructuring could save Chrysler.
- Back and forth the debate went in Larry's small office in the West Wing. Our working team was joined by Diana and other administration economists. Gene Sperling, a Michigan native, argued eloquently and passionately for standing by America's heartland.
- Austan Goolsbee, a fearless former University of Chicago economist who had been with Obama since the beginning of his campaign, led the charge against Chrysler, marshaling strong factual arguments. One was that letting Chrysler go would give a needed boost to GM (and also to Ford), since most buyers of Chrysler's strongest products -- trucks, minivans, and Jeeps -- probably would turn instead to the other Detroit automakers.
- Harry maintained that a Chrysler liquidation could potentially add billions of dollars a year to GM's operating income in a normal sales environment, vastly increasing the value of the company.
- The group was torn (at one point the vote was four to four) and so were Tim, Larry, and I. We intuited that from a theoretical point of view, the correct decision could well be to let Chrysler go. But this was not an academic exercise.
Final Thoughts
- But the episode left an indelible impression on me: If we hadn't had TARP money available and had had to seek congressional approval, I am convinced that one or both of our two automakers would have been forced to liquidate.
- Fortunately, our restructurings survived, and the companies began to operate as private enterprises, just as the President had outlined and just as we had hoped. With that, the workload of the auto task force dropped precipitously, and many of us prepared to leave Treasury, satisfied that we had given these companies the best possible chance to succeed.
- Like any patient that undergoes major surgery, a successful recovery is far from assured. For Chrysler, the biggest challenges are its need to regenerate its product line and manage a significantly leveraged balance sheet. In the case of GM, the overarching question is whether, without an infusion of new blood, its management team can implement the massive cultural change that is essential. But by dramatically lowering the break-even point for both companies, we believed we were creating a healthy margin for error.
