Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry

By Steven Rattner

A uniquely informed investigative account of one of the biggest financial crises of President Obama’s early administration

 

During his first year in office, President Obama faced the possibility of more than a million lost jobs as GM and Chrysler headed for financial ruin. He joined forces with Treasury Secretary Tim Geithner and economic advisor Larry Summers in a historic government intervention to keep these two auto-industry giants afloat, working against a ticking clock and fielding vocal opposition from free market champions along the way. It's from this vantage point that former New York Times financial journalist Steven Rattner witnesses a new administration's grace under pressure in the face of gross corporate mismanagement—a scenario rich in hard-earned lessons for managers and executives in any industry.

• Language: English
• Publisher: HarperCollins
• Release date: Sep 13, 2010
• ISBN: 9780547504568

Steven Rattner

As Counselor to the Secretary of the Treasury, Steven Rattner led the Administration’s efforts to restructure the auto industry. Prior to that, he was Managing Principal of Quadrangle Group, LLC. At Lazard Frères & Co. he was Deputy Chairman/Deputy Chief Executive Officer, after tenures at Morgan Stanley and Lehman Brothers. He was also employed by the New York Times for nearly nine years, principally as an economic correspondent. He continues to write for the New York Times, Wall Street Journal, Washington Post, and Financial Times. He lives in New York.

Book preview

HOUGHTON MIFFLIN HARCOURT

BOSTON NEW YORK

2010

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Copyright © 2010 by Steven Rattner

All rights reserved

For information about permission to reproduce selections from this book,

write to Permissions, Houghton Mifflin Harcourt Publishing Company,

215 Park Avenue South, New York, New York 10003.

www.hmhbooks.com

Library of Congress Cataloging-in-Publication Data

Rattner, Steven.

Overhaul : an insider's account of the Obama administration's emergency

rescue of the auto industry / Steven Rattner.

p. cm.

Includes index.

ISBN 978-0-547-44321-8

1. Automobile industry and trade—Government policy—United States.

2. Bankruptcy—Government policy—United States. 3. Industrial policy—

United States. 4. United States—Economic policy—2009– I. Title.

HD9710.U52R38 2010

338.4'76292220973—dc22 2010033188

Book design by Melissa Lotfy

Printed in the United States of America

DOC 10 9 8 7 6 5 4 3 2 1

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FOR MAUREEN

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Contents

Cast of Characters [>]

Prologue [>]

1. Dead Man's Curve • [>]

2. The Bridge to Obama • [>]

3. Mr. Rattner Goes to Washington • [>]

4. F**k the UAW • [>]

5. Rick, Bob, and Sergio • [>]

6. The B Word • [>]

7. Is This Unanimous? • [>]

8. Jimmy Turns Bright Red • [>]

9. Chrysler's Last Mile • [>]

10. Harry Wilson's War • [>]

11. Epic Bankruptcy • [>]

12. Dealer Nation • [>]

13. The Chief Executive Shuffle • [>]

Epilogue • [>]

Note on Sources [>]

Acknowledgments [>]

Index [>]

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Cast of Characters

TEAM AUTO (U.S. Treasury, unless otherwise noted)

RON A. BLOOM

CLAY CALHOON

BRIAN DEESE (National Economic Council)

DIANA FARRELL (National Economic Council)

MATTHEW FELDMAN

ROBERT FRASER

SADIQ MALIK

DAVID MARKOWITZ

PAUL NATHANSON

BRIAN OSIAS

STEVEN RATTNER

BRIAN STERN

HALEY STEVENS

HARRY WILSON

ADVISERS TO AND STAKEHOLDERS IN CHRYSLER

ALFREDO ALTAVILLA, in charge of Fiat power-train technologies

STEPHEN FEINBERG, managing partner of Cerberus Capital Management (owner of Chrysler)

ANDREW HORROCKS, former managing director of UBS (adviser to Fiat)

THOMAS LAURIA, partner of White & Case (counsel to certain Chrysler senior lenders)

JAMES JIMMY LEE JR., vice chairman of JPMorgan Chase (Chrysler senior lender)

ROBERT MANZO, executive director of Capstone Advisory Group (adviser to Chrysler)

SERGIO MARCHIONNE, CEO of Fiat; later appointed CEO of Chrysler (since June 2009)

ADVISERS TO TEAM AUTO

XAVIER MOSQUET, senior partner of Boston Consulting Group

JOHN RAPISARDI, partner of Cadwalader, Wickersham & Taft (counsel)

TODD SNYDER, managing director of Rothschild

JOHN JACK WELCH JR., former chairman and CEO of General Electric

BUSH PERIOD

JOSHUA BOLTEN, White House chief of staff

CARLOS GUTIERREZ, secretary of Commerce

KEITH HENNESSEY, director of the National Economic Council

DAN JESTER, Treasury contractor

JOEL KAPLAN, White House deputy chief of staff for policy

HENRY HANK PAULSON, secretary of the Treasury

JOSHUA STEINER, Obama transition adviser

CANADA

PAUL BOOTHE, senior associate deputy minister of Industry Canada

CHRYSLER

ROBERT KIDDER, chairman (since June 2009)

RONALD KOLKA, CFO

THOMAS LASORDA, copresident

ROBERT NARDELLI, chairman and CEO

JAMES PRESS,co-president

CONGRESS

SEN. ROBERT CORKER (R-Tennessee)

SEN. CHRISTOPHER DODD (D-Connecticut)

REP. BARNEY FRANK (D-Massachusetts)

REP. STENY HOYER (D-Maryland), House majority leader

SEN. MITCHELL MCCONNELL (R-Kentucky), Senate minority leader

REP. NANCY PELOSI (D-California), Speaker of the House

SEN. HARRY REID (D-Nevada) Senate majority leader

SEN. CHARLES SCHUMER (D-New York)

FINANCIAL REGULATORS

SCOTT ALVAREZ, general counsel of the Federal Reserve Board

SHEILA BAIR, chairman of the Federal Deposit Insurance Corporation

BEN BERNANKE, chairman of the Federal Reserve Board

ROBERTA MCINERNEY, deputy general counsel of the Federal Deposit Insurance Corporation

CHRISTOPHER SPOTH, senior deputy director for supervisory examinations at the Federal Deposit Insurance Corporation

FORD

LEWIS BOOTH, CFO

WILLIAM BILL FORD JR., executive chairman

ALAN MULALLY, CEO

ZIAD OJAKLI, group vice president of government and community relations

GENERAL MOTORS

DANIEL AKERSON, CEO (as of September 2010)

DAVID BONDERMAN, director

TROY CLARKE, president of GM North America

KENNETH COLE, vice president of global public policy and government relations

GARY COWGER, group vice president of global manufacturing and labor relations

NICHOLAS CYPRUS, controller and chief accounting officer

GEORGE FISHER, lead director (until July 2009)

STEPHEN GIRSKY, director; later appointed vice chairman of corporate strategy and business development

FREDERICK FRITZ HENDERSON, COO; later appointed CEO (March-December 2009)

KENT KRESA, director and interim chairman (March-July 2009)

MARK LANEVE, vice president of sales and marketing of GM North America

PHILIP LASKAWY, director

CHRISTOPHER LIDDELL, CFO (since January 2010)

ROBERT LUTZ, vice chairman and responsible for global product development

KATHRYN MARINELLO, director

PATRICIA RUSSO, lead director

JOHN SMITH, group vice president of corporate planning and alliances

CAROL STEPHENSON, director

G. RICHARD WAGONER, chairman and CEO (until March 2009)

EDWARD WHITACRE, chairman (July 2009 to December 2010) and CEO (December 2009 to September 2010)

RAY YOUNG, CFO; later appointed vice president of GM International Operations

MICHIGAN POLITICIANS

DAVID BING (D), mayor of the city of Detroit

REP. JOHN DINGELL (D)

GOV. JENNIFER GRANHOLM (D)

SEN. CARL LEVIN (D)

REP. SANDER LEVIN (D)

SEN. DEBORAH STABENOW (D)

OTHERS

ALVARO AL DE MOLINA, CEO of GMAC

CARLOS GHOSN, CEO of Renault-Nissan

JOHN MCELENEY, chairman of National Automobile Dealers Association

TREASURY DEPARTMENT

STEPHANIE CUTTER, chief spokesperson

JENNI ENGEBRETSEN LECOMPTE, spokesperson

KENNETH FEINBERG, special master for TARP executive compensation

TIMOTHY GEITHNER, secretary of the Treasury

ALAN KRUEGER, assistant secretary for economic policy

MARK PATTERSON, chief of staff

GENE SPERLING, counselor to the secretary of the Treasury

UNITED AUTO WORKERS

RON GETTELFINGER, president

GENERAL HOLIEFIELD, vice president and director of Chrysler department

BOB KING, vice president and director of Ford department; later elected president

CAL RAPSON, vice president and director of General Motors department

ANDREW YEARLEY, managing director of Lazard (UAW's financial adviser)

U.S. BANKRUPTCY COURT, SOUTHERN DISTRICT OF NEW YORK

JUDGE ROBERT GERBER, oversaw the bankruptcy proceedings of General Motors

JUDGE ARTHUR GONZALEZ, oversaw the bankruptcy proceedings of Chrysler

WHITE HOUSE

DAVID AXELROD, senior adviser to the President

RAHM EMANUEL, chief of staff

ROBERT GIBBS, press secretary

AUSTAN GOOLSBEE, member of the Council of Economic Advisers

CHRISTINA ROMER, chair of the Council of Economic Advisers

LAWRENCE SUMMERS, director of the National Economic Council

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PROLOGUE

THE OVAL OFFICE has no proper waiting room, only a small anteroom in which President Obama's body person, Reggie Love, and his secretary, Katie Johnson, are usually seated. Against the wall is a small TV, normally used to monitor news channels. But on this Sunday evening near the end of March 2009, it was tuned to the Arnold Palmer Invitational golf tournament, where Tiger Woods (then still heroic) was making a long-awaited return from knee surgery.

A few minutes before 7:30 a handful of us from the President's auto industry task force had followed chief economic adviser Larry Summers down a narrow flight of red-carpeted stairs and along a short corridor to this room. We'd spent the past hour in the rabbit warren of offices on the second floor of the West Wing, reviewing once more the key documents for a nationally televised announcement President Obama was to make the next day, the seventieth of his presidency. For Obama, this would be among his first major public actions; for our little task force, it was the point of no return.

Since the task force's hasty formation in February, we had been meeting with General Motors and Chrysler, both of which were being fed intravenously with taxpayers' cash. Dozens of consultants, investment bankers, and other outside experts had presented their views, and the question of what the government should do with the struggling automakers had been debated extensively up the administration chain of command. Finally, in tense meetings at the White House a few days before, the President had made his decisions. Those decisions had remained secret until now; tonight he would call the Michigan lawmakers to alert them to what he was planning to say the next day.

The President hadn't come downstairs from his living quarters yet, giving us a few minutes to root for Tiger's comeback—for me, a welcome distraction from worrying about whether our plans for the largest government intervention in industrial America since World War II could work. We had had only five frenzied weeks to prepare for this moment. One more time I mentally reviewed those plans, which included additional billions in taxpayer funding for General Motors and Chrysler and several other controversial and risky measures. What could go wrong? I'd asked myself over and over. As a prime mixer of the strong medicine that the President was about to administer, I was sure that if disaster ensued, all eyes would be on me.

In particular, I worried about the much-discussed prospect of putting the automakers into controlled bankruptcy, a radical approach that defied conventional wisdom. While the President's speech the next day would leave open the possibility that bankruptcies might be avoided, I knew that the mere mention of it—let alone actually taking the step—risked imploding the auto companies, crippling thousands of related businesses, vaporizing millions of jobs, and intensifying what was already a deep recession across the Midwest. With America in the midst of the worst financial crisis since the Great Depression, this was no hyperbole: the failure of the auto companies could endanger the economy in ways that were almost too frightening to contemplate.

The President arrived a few minutes late (Tiger was playing a particularly crucial hole), dressed in khakis and a black zippered jacket. I was not surprised that he was wearing casual clothes—I had on khakis myself. Since President Obama's arrival in the White House, shirtsleeves had become the Oval Office norm, and on weekends almost anything went—even T-shirts and jeans worn by unshaven, sockless men.

While his dress was informal, the President's mood was resolute. He had the air of a man in the business of calmly executing his decisions, not second-guessing them. After he'd chatted briefly with Reggie about the golf match, we followed him into the Oval Office, where he sat behind his desk, bare but for a folder of talking points for his calls.

Katie dialed him first into a conference line on which four lawmakers awaited: Michigan's two senators and two of its congressmen. Delegations from our task force had been meeting regularly with them—tense, often testy sessions in which we were lectured about the importance of helping this critical industry.

We clustered around a phone across the room from the President's desk, by the armchair in front of the fireplace where he sat during meetings. Katie had activated the phone's speaker so we would all be able to listen in, but it barely functioned—probably installed by a well-connected government contractor, the President joked.

He worked through his talking points, fluidly detailing the next day's announcements. Then he paused to let the legislators speak. John Dingell, the longest-serving member of the House of Representatives in history, was gracious and statesmanlike. The others were audibly on edge, although considerably more polite and restrained in conversation with the President than they had been in their meetings with us.

Congressman Sander Levin seemed to interpret the President's allusions to bankruptcy for GM and Chrysler as just a negotiating tactic. I understand that you have to refer to bankruptcy to get people to the table, he began.

The President interrupted in a measured tone: I don't want you to leave with that impression. I'm telling you that because it's a real possibility.

At this, a chorus of anxious voices crackled through the speaker. Senator Debbie Stabenow urged that if the President was going to send such a tough message, he ought to couple it with a strong statement of support for the auto industry. Senator Levin beseeched him not to use a broad brush in criticizing the companies and to acknowledge the progress that they had made.

The President listened carefully. When he brought the call to a close after about thirty minutes, he asked Larry to take another look at the speech. By the following morning we'd responded by sanding down the criticism of the companies and adding the Cash for Clunkers program to bolster car sales.

The next call was to Governor Jennifer Granholm of Michigan. I'd gotten to know her as an energetic, dynamic candidate during her 2006 campaign, but Michigan was suffering the nation's highest unemployment rate, and in our more recent conversations she'd seemed beaten down and demoralized. Now, as she listened to the President outline his plans, her spirits seemed to fall further and her voice barely rose above a whisper.

I hope you know what you're doing, she said softly.

During the final call, Ron Gettelfinger, head of the United Auto Workers, who had been defiant the previous autumn when Detroit first asked for federal help, was low-key and respectful now. This augured well for the tough discussions we knew we needed to have with him.

When his calls were completed, the President walked out of the Oval Office and back to the small TV, to learn that Tiger had hit a birdie putt on the eighteenth hole to win. Tiger's day may have ended, but for the task force, a night of work was just beginning.

1. DEAD MAN'S CURVE

FOUR MONTHS EARLIER, on the day before Thanksgiving, I was about to leave my office to take one of my sons to a matinee of Speed-the-Plow on Broadway when the phone rang. It was Larry Summers, who'd just been named chief economic adviser to Barack Obama, the President-elect. I'm calling with a hypothetical question, Larry said. If you were asked to take on a six- to twelve-month assignment for the administration, would that be something that could work for you? I replied that such an arrangement would be complicated, but all the same, it was something I'd be happy to consider.

For most of my career, I had majored in Wall Street and minored in Washington. I'd built a career in investment banking and private equity, limiting my involvement in politics to fundraising, serving on a few think-tank boards, and writing the occasional op-ed. While I'd flirted with government service in the past, the beginning of this new administration seemed like a compelling moment to step up. Our country was facing the greatest financial and economic crisis since the Great Depression; when would the skills of a finance guy like me possibly be more useful? If I hung back this time, what would I be saving myself for?

I hadn't worked in D.C. since the days of Jimmy Carter, and then not as a government official but as a reporter for the New York Times. I'd fallen into the job in 1974, starting as a news clerk for the Timess legendary columnist James Scotty" Reston. Arriving in the capital two months before Richard Nixon's resignation was a dizzying experience for a twenty-one-year-old college graduate. A few years later I was a full-fledged Washington correspondent, responsible for covering what in the face of OPEC and stagflation were the two most important domestic issues facing the Carter administration: energy and the economy.

Then came the election of Ronald Reagan. Some of the stories I wrote were deeply skeptical of supply-side economics, to the point where I found myself attacked on the Wall Street Journal editorial page. My superiors decided that this would be an excellent moment for me to move to London to cover European economics.

Neither London nor journalism outside Washington was particularly satisfying, however. I grew restless. Although I had leaped at the opportunity to work with Scotty Reston, I had never set out to be a journalist. I'd been raised in the New York suburbs in a nonpolitical, business-oriented family. My father, who had seen his family's fur business go bankrupt during the Depression and now ran our family's paint-manufacturing company in Queens, had urged me toward a professional education. I'd even applied and been accepted to business school and law school, both of which I'd deferred to stay at the Times. Now I felt the journalistic frustration of peering through the glass instead of running something or building something in the real world.

I could have tried returning to Washington as a public servant. But the private sector was a more realistic option in those days of Republican ascendance. Several friends I'd known in Washington had shifted to investment banking. That industry had nowhere near the glitz or notoriety it would gain within a few years, but listening to those who had entered the fray, it sounded like an exciting, challenging way to marry some of the variety and competitiveness of journalism with a chance to do more than report.

Money wasn't my main motivation—I was single and earning more than $60,000 a year, with both a cost-of-living allowance and a generous expense account—and it took me a while to realize how weird I sounded saying that on Wall Street. When asked in job interviews why I wanted to become an investment banker, I would speak somewhat airily about doing something different from journalism. My prospective employers would look at me quizzically. The more forthcoming ones told me that this was too tough a profession to take on unless I had a real drive to get rich. So I learned to play up a passion for moneymaking and to mention the limitations of living on only a five-figure income.

I understand completely, said one of my last interviewers. I don't know how anyone can live on sixty thousand dollars a year. At that time, someone making that much ranked in the top 10 percent of all earners.

In my early years on Wall Street, I had no time for politics or policy. I devoted my waking hours to work and tried to be a good family man. The best thing that had come out of my time in London was meeting my wife, Maureen White, another American expat. When we decided we wanted children, we somehow managed to have four in four years' time (one set of twins).

Not until the mid-1990s, after I'd risen to a senior post at the investment bank Lazard Frères, was I able to focus again on Washington. I began to write op-eds. I became involved with several think tanks and started donating to candidates I liked.

Maureen and I had met the Clintons on Martha's Vineyard in the early years of Bill Clinton's presidency. Our relationship was cemented in 1995 when Vernon and Ann Jordan arranged for us to stay over in the Lincoln Bedroom, on the second floor of the White House. We were so naive about fundraising that we took the Jordans at their word when they said that the Clintons wanted to meet a few new interesting people.

That year, we dove into Clinton's reelection effort—raising money, courting business support, and attending events. After the election, Maureen became the U.S. representative to UNICEF. I had conversations with Treasury Secretary Bob Rubin and his then-deputy Larry Summers, but their needs and my availability never coincided.

Maureen and I worked hard for our friend Al Gore in 2000, and then again for John Kerry in 2004, because we could not bear George W. Bush's policies. At the time, I wasn't thinking of a Washington job; I had made a commitment to the three partners with whom I started a private investment firm, the Quadrangle Group, in 2000, promising that I would not leave for at least five years. And I was enjoying helping our little firm grow and thrive.

When Hillary Clinton ran for President in 2008, the decision to support her was easy. I admired her enormously and thought that she was the best qualified to be President. But as the campaign unfolded, it became clear that on substantive policy grounds, she and Obama were almost indistinguishable. So while I was proud to be a Clinton supporter, I always felt that Obama would also be fine. In August 2007, I ran into him at a Martha's Vineyard golf club and mentioned that if he became the nominee, I'd be pleased to help in any way I could. (At that moment, I suspect neither of us thought that outcome was likely.)

We stayed with Hillary to the bitter end; I've always believed that the girl you bring to the dance is the girl you stay with. But when she dropped out in early June 2008, Maureen and I were happy to support Barack. As always, we tried to keep a low profile and help where we could, mainly in fundraising, business outreach, and cultivating other potential supporters, particularly those who had been for Hillary.

Election night 2008 was a celebratory moment for us. Of course, almost immediately the jockeying and speculating over appointments began. I wanted to serve and felt that now the timing was right: my kids were nearly grown, and Quadrangle was coming up on its ninth anniversary and I had capable partners. But I knew from observing previous transitions that Obama would pick his most senior advisers first. Any potential role for me would be a notch down.

I had not concealed my interest in Washington, so I didn't think I needed to do much to advance myself. I'd seen would-be officeholders put themselves forward shamelessly—and futilely. Any job I would want would be decided on merit, another reason for not trying too hard. My prospects were helped by my relationships with people involved in the transition, including its overall head, John Podesta, a former chief of staff to President Clinton. In charge of the personnel process was Mike Froman, a former Treasury chief of staff, a law school classmate of Obama's, and a good friend of mine. My partner from Quadrangle Josh Steiner, himself a former Treasury chief of staff who had been caught up in the Whitewater scandal, had been asked to help with the economic-policy portion of transition planning. One of the few people I talked to openly during this period, Josh urged me not to be passive. Very few people get drafted for these jobs, he said. So I visited briefly with Podesta and Froman to register my interest in serving in the new administration.

On the Monday before Thanksgiving, Obama announced the key members of his economic team. Timothy Geithner's appointment as Treasury secretary made him my most likely new boss, so I sent him a congratulatory e-mail noting my willingness to serve. The cryptic phone call from Larry Summers as I was leaving to see Speed-the-Plow came the next day. After that, I sat back to wait. While Josh was discreet, I knew he would alert me if there was some action he thought I should take.

Tim was still president of the New York Federal Reserve Bank—a more-than-full-time job as the financial crisis accelerated. I could not imagine how he could manage it and prepare to run the Treasury at the same time. So I was excited to get an e-mail from his assistant, asking me to meet with him on December 18 at 8:30 A.M.

Having allowed plenty of time in case of rush-hour delays, I arrived early at the gray, fortresslike Federal Reserve building on Liberty Street in downtown Manhattan. Ushered into a small sitting room, I waited until Tim, in his customary blue suit and white shirt, rushed in, dropped his BlackBerry and phone on a side table, and began my first job interview in years.

Speaking in his usual concise, focused fashion, Tim explained that Treasury's traditional organization was unsuited to the current economic problems: there were more crises than there were formal jobs. And yet, he explained, it was hard to create new senior positions without congressional approval. So Tim was thinking in terms of tasks rather than positions, implying that he'd get to the specifics of positions and titles later. He mentioned four issues that might be appropriate for me to work on: housing, the immediate banking problems, longer-term financial policy, and autos.

I said that I was open to discussing any of the possibilities and didn't want to make his impossible life more difficult by being finicky. Less than fifteen minutes into our scheduled forty-five-minute meeting, an assistant came to summon him to another meeting, and Tim stood to leave.

Do you have any questions for me? I asked, disconcerted by this abrupt turn in my job interview.

No, he replied and was gone.

Later, it struck me that the jobs Geithner had listed were like a four-point checklist of the financial and economic calamities facing the new President. With the collapse of the subprime mortgage market and the unprecedented fall in property values, homeownership had gone from the American dream to a debt nightmare for millions of families. The nation's biggest banks and investment houses were mostly crippled, threatening to paralyze the entire economy. Financial policy had clearly failed to guard against this, and once the emergencies were resolved, the question would be how to fix the system. And the auto industry, the once proud symbol of America's industrial might and still the employer of millions, was near ruin. If any one of these missions became mine, I thought ruefully, I certainly would not have to worry about being stuck in some purely honorary job.

Like most Wall Street denizens, I had watched closely as these crises cascaded through the financial markets and undermined the broader economy. Our private equity investments were mainly in media and communications, sectors somewhat removed from the financial industry collapse. Nor did we engage in derivatives or subprime or risky lending in our other principal business: serving as the investment arm for Mayor Michael Bloomberg's personal and philanthropic wealth. So we did not feel the same sense of imminent peril that many of my friends experienced. At first the crisis was simply unnerving—also fascinating in a morbid sort of way.

I followed the daily developments closely. As a private equity investor and mergers and acquisitions veteran, I was only vaguely familiar with the new lingo of Wall Street—special investment vehicles, collateralized loan obligations, super senior tranches, conduits and securitizations. Now I did my best to learn, often entreating friends who were closer to the action to explain to me the new alphabet soup of CLOs, SIVs, MBSs, and so on. Writing helped me collect and focus my thoughts. In 2007, I warned in the Wall Street Journal of a coming credit meltdown. As the crisis developed, I contributed opeds on housing, on the likely emergence of better-capitalized banks, on what to do with Fannie Mae and Freddie Mac, on the future of private equity, and on the state of the economy (about which I was way too optimistic).

For many months, Wall Street was in a muddle about what it wanted Washington to do. In March 2008, when the Fed saved Bear Stearns, many in the financial community were dismayed. Moral hazard! they cried. Poorly run institutions must be allowed to fail! For the next few months, markets continued to erode only gradually, with the acute pain confined to those in the subprime mortgage arena. But then came the crisis of September 2008. The Street wanted the government to let Lehman go—a notch in the moral-hazard belt—and the Federal Reserve and the Bush administration obliged. But from that horrible Monday morning when we awoke to Lehman's bankruptcy—the firm at which I enjoyed beginning my Wall Street career and at which I still had many friends—it was clear that things would never be the same.

I had experienced market crises, but nothing like this. The 1987 stock market crash—unnerving as it was on another Black Monday, October 19—had proved short-lived. The Asian crisis in 1998 had been messier and protracted, but Asia was on the other side of the globe. This meltdown was right here in Manhattan, where we saw friends lose their jobs and much of their net worth. Financial markets began to seize up. Being a private equity guy was no longer a sheltered cove; we had portfolio companies that needed financing and none was available. Meanwhile, the recession that we now know officially began in December 2007 started to affect some of our companies' results, particularly those with substantial advertising revenues. We plunged into intensive reviews of each company, intent on cutting expenses and stretching liquidity as far as possible. The Bloomberg portfolio, conservatively invested, performed better than most of its peers, but the declines still stung. Above all, the sense that no one knew where the bottom was created more widespread terror than I had ever experienced in my Wall Street career. (As determined investors, we tried to find exciting opportunities amid the carnage, but it was hard to summon the courage to run into a burning building.)

I wasn't shocked—maybe I should have been—that Tim would have mentioned four very diverse jobs. For one thing, government has always placed more confidence in the transferability of skills than the private sector. Perhaps more importantly, all four issues had finance at their core, and all would benefit from a fresh look by people who were not wedded to past models and outmoded approaches. Even solving the auto crisis, I understood, would not be a management assignment like running a corporation; it would be a combination of restructuring exercise (cleaning up the mess) and private equity task (investing new capital). While the Wall Street community includes many who are more expert at both tasks than I, after twenty-six years in finance I felt that my major and my minor had converged.

Josh hinted a few days later that I was likely to be offered autos. My first reaction was to think, But I live in New York!—as a Manhattanite, I neither knew nor cared much about cars. (I'm a pilot, more interested in planes.) But Josh encouraged me, arguing that I could help prevent the devastation of this iconic industry. Among his many roles, he'd been named the transition team's senior auto adviser and had been scrambling to get up to speed on the ills of Detroit.

The same week as my job interview with Geithner, the Bush administration committed $17 billion of federal funds to General Motors and Chrysler, putting them on financial life support. The money came with a hodgepodge of conditions, including a mid-February deadline, when the automakers had to submit viability plans, and another at the end of March, when the new Obama administration would revisit the whole issue. By then the automakers would again be almost out of cash.

Josh described this state of affairs as challenging and interesting, perhaps in part because he was eager to hand it off. Another close friend, Senator Chuck Schumer, gave me a different take when we talked at dinner not long after I'd met with Tim. Autos is a no-win, the senator bluntly declared. The situation is probably unsalvageable. You'll run up against the unions and get eviscerated by your own party. Work on housing—it's a big, important issue, it affects everybody, it has to get resolved, and the politics are easier.

A week went by and the holidays came. On December 26, I took my family to Spain for a week of sightseeing (history trips, our kids called these annual expeditions). But Tim's office interrupted our vacation on the thirtieth, asking to schedule a call for the following day. When my cell phone rang on New Year's Eve, Tim offered me the auto assignment, reporting to both him and Larry. I was very positively inclined, I said, but needed to discuss it with Maureen and a few others. Other than his telling me I would be a counselor to the Treasury secretary, there was no talk of terms or responsibilities, and the call ended in less than five minutes.

A few hours later, as we were about to go to dinner, the phone rang again; this time it was Larry, calling from vacation in Jamaica. I know you talked to Tim, he began. It would be great if you did this. He was surprised to discover I was in Barcelona and said, It's a good thing I didn't call much later. Never one to stay up late, even on New Year's Eve, I replied, My phone would have been off. I gave him the same response I had given Tim and went to join my family.

I lay awake for a while that night as 2009 began, sensing I was on the verge of the experience of a lifetime. I was being given a chance to play a central role in the largest industrial restructuring in history from within the most powerful institution in the world—the United States government. I would come to the job thinking I knew a lot about business and a reasonable amount about Washington. I didn't realize that my eyes would be opened to harsh new perspectives on both worlds. I would learn of both the devastation across our manufacturing sector—in part, collateral damage from our sound commitment to free trade and NAFTA— and the intimidating challenge of reversing the trend or even just halting the decline. I would discover that the struggles of GM and Chrysler were as much a failure of management as a consequence of globalization, oil prices, and organized labor. I certainly understood the importance of management to the small companies in which my firm invested; what would astound me was how important one or two individuals could be to the fortunes of businesses that were among the largest on the planet. And I would witness the dysfunction of Congress, its inability to rise above deep partisan divides and narrow parochial interests and produce legislative action to address in a thoughtful manner the many challenges that we face. I would conclude that if sunshine is indeed the best disinfectant, as Justice Brandeis once said, we need to find the most powerful lenses available to focus the sun's rays on the U.S. Congress and, particularly, the Senate.

In the end, the auto rescue would prove to be not just the story of two iconic automakers. It would exemplify many of the challenges that confront Americans in the twenty-first century—from our struggling manufacturing base to our declining middle class—and illustrate how difficult it is in the hothouse of Washington, so deeply divided along partisan lines, to take the desperately needed swift actions. I believe firmly in President Obama's efforts to restore our economy, yet because of such obstacles, 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. Detroit should count itself lucky.

***

It had taken America's automakers my entire lifetime to come to the crisis they were in. I grew up during Detroit's heyday, the fifties and sixties, when the Big Three were just that. General Motors, Ford, and Chrysler controlled 90 percent of the U.S. car market, by far the world's largest. GM sold half the vehicles purchased annually in America, coming in year after year in the number one spot on the Fortune 500 list of America's largest industrial companies. Driveways and garages up and down the street in my parents' affluent Long Island suburb were filled with Ford Country Squires, Lincolns, Cadillacs, and the like.

In those upbeat days, Detroit's offerings echoed the optimism of the space age, drowning in chrome and sporting glamorous-sounding names like Galaxie, Starliner, Thunderbird, and Barracuda. My best friend in high school got a Camaro convertible as a graduation present from his parents, and we all thought it was about the coolest thing around. It was perhaps a precursor of things to come when in 1966 my mother abandoned our family's preference for Fords and bought herself a small Mercedes, and our family became among the first I knew to own a foreign car.

I was a college junior when gasoline prices first soared to shocking levels, which ended Detroit's hegemony and opened the floodgates for small, inexpensive, fuel-efficient Japanese imports. Competition, high gas prices, and stagflation squeezed the U.S. carmakers hard in the 1970s, ending with Chrysler nearly bankrupt and Ford and GM deep in red ink. At the New York Times I helped cover Chrysler's pleas for a government bailout. In one story I described the debate as a first-rank political and economic controversy over whether it is obligatory, or even desirable, for the Federal Government to come to the rescue of a large, ailing corporation. That question, it turned out, would trail me.

On highways and streets, imports—Corollas, Civics, Datsuns, and Volkswagens—became as popular as American cars. I'd shared the use of a Ford Pinto in college (one of the worst cars ever built), but when I got to pick my own car, I chose a sporty Datsun 260Z. Volvos competed with U.S. station wagons, and Mercedes and BMWs displaced Cadillacs and Lincolns at the luxury end. In 1982 came the first successful transplant—a Honda factory opened in Marysville, Ohio, where non-union American workers turned out Accords just as efficiently as workers in Japan. Such plants enabled Detroit's rivals to avoid import restrictions and lessened the effects of currency swings, increasing the pressure on the Big Three.

That is not to say Detroit didn't have successes. After its first bailout, Chrysler, fired up by Lee Iacocca as its CEO and TV pitchman, invented the minivan and changed the world of driving for suburban moms. Ford launched the Taurus, a radically curvaceous full-size car that critics first ridiculed as a flying potato, then hailed as a design breakthrough. Consumers made it the best-selling car in America, displacing the Honda Accord. These late-eighties successes drove Ford and Chrysler to record-breaking profits and lit up their stocks. Ford's stock price rose 1,500 percent between 1981 and 1987.

But beneath it all was an undertow. U.S. automakers' market share was eroding as the Germans and Japanese developed a better bead on what buyers wanted. Confronted with lagging demand, Detroit was always a lap behind in cutting capacity, raising productivity, and renegotiating with labor. The

Reviews for Overhaul

[hadriantheblind · Rating: 4 out of 5 stars]

Insider's view of one of the biggest economic restructurings in modern history. It really is too soon to determine how well the program is working, but the greater workings of politics and boardrooms are all laid bare here. Worth it.

[shrike58 · Rating: 3 out of 5 stars]

If you managed to lose track of the great bail-out of GM and Chrysler in the early days of the current administration this is not the worst book in the world that you could read to get up to date. Keep in mind that the author never misses an opportunity to pat himself on the back whenever possible, while casting disdain on the constitutional and procedural processes designed to keep those of his ilk in Wall Street at bay (the author was eventually caught up in his own seedy little ethics mess). To say that Rattner operates under the "great man" theory of history would be putting it mildly. Still, the one thing I can agree upon with Rattner is that all the scorn he casts upon the old management at GM was greatly deserved. If you were following this bailout the most interesting points are probably in regards to Chrysler, which was overshadowed by the battle to save GM; that Daimler-Benz's management of the firm verged on the criminal could have been played up more.

[deaconbernie · Rating: 4 out of 5 stars]

A very understandable revelation of what happened when and why in the bailouts of Chrysler and GM. Mr Rattner was in a very visible position to tell us all about it. The inside story he tells drops the word billions all over the place. It does tell us once again that good management is essential to any endeavor, and good managers can function even with an absence of product knowledge.