The auto bailout: How we did it

I debated on posting this in the off-topic section or the GRM section. I'm thinking domestic auto manufacturers are about as Grassroots as it gets. Here goes...

(Where my crap link was)

Here is THE article about the auto bailout. How and why it was done as well as other details such was why Wagoner had to go. I'm not finished reading it yet but after the first 1/2 of the article I think you guys will be interested.

I've read quite a few things in the article that ring in my head after the debates many of us had about this bailout when it was proposed and enacted. It would seem we were all right about different points. Two things that come to mind is that stated in the article is that their labor costs were too high. The other thing stated in the article was a sense of denial and mismanagement by the board as well as the CEO's.

Read the article. It gives a lot of insight into how GM and Chrysler were run.

Fixed link:

http://money.cnn.com/2009/10/21/autos/auto_bailout_rattner.fortune/index.htm?postversion=2009102104

Thanks aircooled. I was so excited I mis-linked.

Some real gold in that article. I know it was written by "the victor" so to speak but I like the "inside looking out" viewpoint.

His small view of the GM executive "culture" was pretty scary. I imagine a more in-depth view of that would be very scary.

The ability to intimidate the players in the story seemed to be critical. Sad but true.

I read this a while back and was amazed at some of the things in the article. I was also amazed at some of the things not in the article. Like Xceler8x said, it's the victor's side trying to justify their actions so it is quite a bit one sided. As if they didn't have a plan when they entered the building.

But in the spirited debates on this and other forums that proceeded the article coming out I said this:

"Even before we met the two management teams, it was clear to us from the "viability plans" that the companies had submitted on Feb. 17 that GM and Chrysler were in a state of denial.

Both companies needed gigantic reductions in their costs and liabilities. They had way too many plants and workers for expected car volumes. And their labor costs were out of line with those of their most direct competitors, the Japanese "transplants" manufacturing in the South. "

This was one thing I was worried about. Sacrificing Chrysler just so that more buisness would go to GM &/or Ford. "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."

Of course not, they were paying the UAW off for votes "Are you going to fire Ron Gettelfinger too?" Startled by the reference to the UAW head, I replied, "I'm not in charge of firing Ron Gettelfinger," and Rick soon left to brief his board on our decision."

Interesting article. A good read.

It just furthers my belief that leaders should be paid upon company performance and not stock price. Maybe they should be paid a nominal salary + a bonus that is an aggregate of measures of profit, quality, customer satisfaction, employee satisfaction, etc.. but what the hell do I know, I'm just a worthless liberal.

Sounds like some asshats still subscribe to the old tired adage, "What's good for General Motors is good for the country.

ignorant wrote: Interesting article. A good read. It just furthers my belief that leaders should be paid upon company performance and not stock price. Maybe they should be paid a nominal salary + a bonus that is an aggregate of measures of profit, quality, customer satisfaction, employee satisfaction, etc.. but what the hell do I know, I'm just a worthless liberal.

I completely agree!

But what do I know, I'm just a worthy fiscal conservative.

ignorant wrote: It just furthers my belief that leaders should be paid upon company performance and not stock price. Maybe they should be paid a nominal salary + a bonus that is an aggregate of measures of profit, quality, customer satisfaction, employee satisfaction, etc.

"aggregate of measures of profit, quality, customer satisfaction, employee satisfaction, etc." = stock price

David

Having now read the article:

Rattner seems pretty smart and like he has been around Wall Street enough to know the ins and outs. But I thought he was out of line in two areas:

1. He states several times that, without a bailout, GM and Chrysler would each have been forced to liquidate. I can't believe this. These are major, worldwide operations with valuable brands, engineering operations, and market share. They would have been gone through bankruptcy and emerged, in some altered form, but not liquidated. This incorrect belief of Rattner's (and the rest of the administration?) would have prompted them to discount the option of allowing a regular Chapter 11 bankruptcy, in accordance with established law, rather than forcing a government-developed and -forced restructuring.

2. The administration used its' leverage to give sweetheart deals to Chrysler's union. The union got paid more for its' Chrysler debt than the senior lenders got paid for their Chrysler debt. The senior lenders owned SENIOR debt, meaning they should have been paid MORE. [In fact, the union had subordinate debt and should have gotten NOTHING.] This violated all the rules about debt seniority which is codified into United States law and on which is predicated all the lending in this country, including your credit card and your mortgage. This was a vast over-stepping of bounds. Rattner is cavalier about this, and it is ridiculous that he denies there is a political rationale for it.

While distasteful to me, I will agree that by burning through $13 billion of taxpayer money, GM had let the government's camel's nose under the tent flap and that the government was in a position to fire the CEO. On the other hand, it absolutely a major intrusion of government into private enterprise to fire a CEO and Rattner again appears cavalier about it. He should recognize that, just as the decision to fire was justified, so also was the uproar justified.

David

DWNSHFT wrote:

ignorant wrote: It just furthers my belief that leaders should be paid upon company performance and not stock price. Maybe they should be paid a nominal salary + a bonus that is an aggregate of measures of profit, quality, customer satisfaction, employee satisfaction, etc.

"aggregate of measures of profit, quality, customer satisfaction, employee satisfaction, etc." = stock price David

it should, but stock price is too heavily weighted toward financial performance and those numbers are sometimes easy to skew. An example would be at the end of the year when our plant manager will kill spending on everything so we can make our financial performance numbers. No pens... No work.

ignorant wrote: Interesting article. A good read. It just furthers my belief that leaders should be paid upon company performance and not stock price. Maybe they should be paid a nominal salary + a bonus that is an aggregate of measures of profit, quality, customer satisfaction, employee satisfaction, etc.. but what the hell do I know, I'm just a worthless liberal.

holy E36 M3, i agree with ignorant again. that's twice in this lifetime.

AngryCorvair wrote:

ignorant wrote: Interesting article. A good read. It just furthers my belief that leaders should be paid upon company performance and not stock price. Maybe they should be paid a nominal salary + a bonus that is an aggregate of measures of profit, quality, customer satisfaction, employee satisfaction, etc.. but what the hell do I know, I'm just a worthless liberal.

holy E36 M3, i agree with ignorant again. that's twice in this lifetime.

Taking this one step further it reaffirms my belief that Profiticians should be paid the gross average of the income they represent as well.

thanks for that, that was a good read.

"Many other unsecured creditors -- notably, suppliers and consumers holding warranties -- actually received 100¢ on the dollar. The fact was, Chrysler had to have workers, suppliers, and customers to succeed and therefore needed to give them more than called for by their rank in the capital structure."

I beleive that showed that they had thier priorites correct.

DWNSHFT wrote:

ignorant wrote: It just furthers my belief that leaders should be paid upon company performance and not stock price. Maybe they should be paid a nominal salary + a bonus that is an aggregate of measures of profit, quality, customer satisfaction, employee satisfaction, etc.

"aggregate of measures of profit, quality, customer satisfaction, employee satisfaction, etc." = stock price David

In theory anyways, in practice it's basically how much cash a company looks like it can rake in. And companies like to throw stock-based prices at CEOs so that their first, second and third priorities will be to increase stock values by any means necessary, and we can all see how sustainable that is and how it translates into real value for the customer and a good work environment for employees.

In short, public trading = corporate zombism. Once infected, all they can do is trudge around, brainlessly lunging after any source of short-term profit until they die one way or another. Someone is going to point out Amazon.com as a counter-example, but one company out of millions doesn't mean much...

DWNSHFT wrote: ....This incorrect belief of Rattner's (and the rest of the administration?) would have prompted them to discount the option of allowing a regular Chapter 11 bankruptcy, in accordance with established law, rather than forcing a government-developed and -forced restructuring....

It seemed like in his description that they effectively did the actions of a bankruptcy without some of the harsh effects that a real one would entail (made lighter no doubt by the huge influx of federal money).

I thought it was a decent article until I got to the last paragraph, and then my opinion of the entire thing changed to think that it is all a "look how much better than everyone else I am" horn blowing session, probably as a way to sell his story to publishers so he can get a sweet book deal.

"On a muggy July evening, I left Treasury through the south entrance, the opposite end of the long building from where I had first tried to enter so many months earlier. A tourist who had stopped to take photos of the statue of Alexander Hamilton recognized me. "You guys did good work," she said, seeming to channel Hamilton's belief in industrial policy and the importance of manufacturing. "He would have been proud of you." "

Dear Lord, how fricking cheesy can you get? First, I have my doubts that someone would actually recognize Steve Rattner if he was walking down the street. Second, who would actually approach him and then claim that Alexander Hamilton would be proud of him? Third, how many people are aware of Hamilton's "belief in industrial policy and the importance of manufacturing" and would draw parallels to the current situation? I'm guessing that whole episode was made up by Rattner to try to show how important he is and how he deserves a huge place in history, when in reality he'll go down as a footnote in someone's book about the history of the US auto industry.

Regarding "Chrysler had to have workers, suppliers, and customers to succeed", they also need A LOT of financing to survive. Why should the people who provide that financing (supposedly secured financing no less) be shafted? Yes, they need workers, but the workers are a large part of the reason they went bankrupt, and the workers would have stuck around regardless - many of them have no prospects other than working in a factory, and even at the reduced wages of a post-bankruptcy Chrysler will probably be making better money than 75% of the population. As for suppliers, many suppliers have been going under, and are pretty quickly picked up by other suppliers, like Magna, keeping production going. Why doesn't the gov offer direct help to these failing suppliers? And how does screwing the finance companies attract customers to Chrysler?

Bob

One thing about the workers, while I'm not a huge fan of the UAW, they are not the reason for problems.

Just check the last few years of publicly available annual reports for GM and Chrysler, normalize them to cars built, and compare to Toyota. I've posted it a few times, but over the past few years, GM makes cars for quite a bit less money than Toyota- with a much larger workforce. So Labor isn't the large cost in doing business. Where Toyota kills GM is in revenue/unit. Not cost/unit like most seem to think.

No, the UAW isn't helping, but to heap the whole blame on them isn't right. It took a team.

E-

ignorant wrote: Interesting article. A good read. It just furthers my belief that leaders should be paid upon company performance and not stock price. Maybe they should be paid a nominal salary + a bonus that is an aggregate of measures of profit, quality, customer satisfaction, employee satisfaction, etc.. but what the hell do I know, I'm just a worthless liberal.

Should do that for all US industries. Then we would get planning for the sake of making money instead of stock price. I'd rather favor the bond holders than the share holders.

E-

I thought it was interesting that the article stated that the domestic products were better than the market gives them credit for. That's been my experience in driving a few rentals over the last year or so. I can't speak to long term reliability. Low mileage, newer domestic cars drive very well from each manufacturer I've tried.

I will just add that I think the companies execs, CEOs, workers and whatever should get paid whatever the heck the company sees fit to pay them, whether ridiculously low, ridiculously high, or in the middle. I also think, however, that a failing company shouldn't be aided by anyone in government - ever.