Book Review: Overhaul, By Steven Rattner

Overhaul by Steven Rattner


In Steven Rattner’s new book Overhaul, he quotes former Obama Chief of Staff Rahm Emmanuel as saying, “Never let a crisis go to waste.” Ford lost $8.7B in 2Q08, while GM burned $15.5B — crisis indeed.

Rattner was appointed head of the Auto Task Force to determine the automakers’ fate. Team Auto had two principles:

1. Taxpayer funding should only be loaned in exchange for a restructuring that made the automakers independently viable.

2. All stakeholders had to feel pain.

Facts became clear. GM was nearly as efficient as Toyota in building cars according to the 2007 Harbour Report. As claimed by the UAW, hourly wages were virtually identical to Toyota by 2009. In 2000, NHTSA received 712,000 complaints for GM vs. 2,000 for Toyota. By 2009, NHTSA received 1,000 complaints for Toyota, less for GM. Products were mostly winners. Still, perception trailed reality, preventing GM from charging higher Toyota prices.

Chrysler was determined to not be independently viable. Its products were behind the curve and it lacked GM’s global reach, especially in China. Fiat chief Sergio Marchionne agreed to a deal that gave the Italian automaker 20% of Chrysler with managerial control. New models coming for 2011 and beyond should prove the Fiat-Chrysler partnership works.

Team Auto determined GM and Chrysler could compete given a restructuring, new management, and by addressing legacy healthcare – the later handled by multi-billion dollar payments to a UAW fund, called VEBA, that freed automakers fromretiree healthcare

After burning through $32B, GM Chairman/CEO Rick Wagoner blamed his issues on the financial crisis, oil prices, yen-dollar exchange rates, and the UAW. From 1995-2008, GM lost nearly 1/3 of its market share. Rattner rightly “accepted” Wagoner’s resignation during a meeting at Treasury.

Fritz Henderson became CEO while Ed Whitacre, former head of AT&T, was hired as Chairman. Unlike Wagoner, Whitacre spent time with employees, most famously by showing up at a Detroit plant unannounced in blue jeans and sweatshirt. Dan Akerson became CEO on September 1, 2010 and will assume the Chairmanship on December 1.

Section 363 of the bankruptcy code enabled the team to separate good assets from bad, allowing new companies to emerge quickly without bad assets. This worked for both GM and Chrysler, ushering each through proceedings in about a month each during Summer ’09.

After bankruptcy, GM was owned by the U.S. Treasury (60.8%), VEBA (17.5%), Bondholders (10.0%), and Canada (11.7%). The process removed $65B in liabilities, annual N.A. structural costs of $8B, and 30,000 jobs. Chrysler is owned by Fiat (20%), VEBA (55%), U.S. Treasury, and Canada. Fiat cannot increase its stake beyond 49% until The Treasury is re-paid. Since bankruptcy, GM jettisoned Hummer, Saab, Saturn, and Pontiac. Controversially, GM identified 1,124 dealers and Chrysler notified 789 for closure.

Ford had similar problems as GM and Chrysler, but avoided bankruptcy. Chairman Bill Ford and CEO Alan Mulally realized in 2006 a storm was coming and mortgaged assets to create $23.5B of credit. By 2008, the credit market had frozen, leaving The Treasury as GM’s and Chrysler’s bank of last resort. As a nod to Ford’s management team, the company netted $2.6B in 2Q10, vs. $1.3B at GM, despite debt shed by the latter.

Rattner’s team took full advantage of the crisis and $81.8B (most to be paid back) to make the automakers viable businesses. Stabilizing the auto industry was not popular, but is proving to be smart action. A General Motors IPO is scheduled for November, moving it and Chrysler beyond the crisis and taxpayer benevolence.