Rattner: General Motors CEO Wagoner Had to Go
Despite the more than 60 billion of U.S. taxpayer dollars pumped into the rescue of General Motors and Chrysler, their futures remain hazy, Steven Rattner, the former head of the Obama Administration's auto task force, said on Wednesday.
Rattner resigned his post in July and his Oct. 21 speech at the National Press Club in Washington was one of the first times he's spoken publicly about the restructuring process. Rattner said the primary challenge facing Chrysler now is how to use its partnership with Fiat (FIA.MI) to introduce fresh new products that catch the eye of auto buyers who had soured on the company's lineup as it cut back on vehicle development and in other areas. For GM, the biggest changes need to come in corporate culture and decision-making in the executive suite, Rattner said. The government asked GM's CEO, Rick Wagoner, to step aside in March after Rattner and his team observed what he called a "lack of financial discipline" within the company.
The decision to replace Wagoner with Chief Operating Officer Frederick "Fritz" Henderson and gut the company's board, while controversial at the time, was common sense, Rattner said Wednesday: "It seemed obvious that any CEO who had burned through $44 billion of cash in 15 months should not continue."
Chrysler Rescue Not a Clear-Cut Decision Rattner said that he, Treasury Secretary Timothy Geithner, and National Economic Council Director Larry Summers agreed there were only two possible outcomes last year: Save GM and Chrysler now and hope they would survive in years to come, or stand back and watch them collapse, taking down Ford (F) and the auto supply chain along with them. That latter path might have cost 1 million jobs and pushed unemployment in states like Michigan to 20%. "The stakes were high," Rattner said. (Even so, Michigan's unemployment rate hit 15.3% last month, the nation's highest level of joblessness.)
Rattner said that keeping Chrysler afloat was not as clear-cut a decision as saving GM. Had Chrysler been allowed to fail, Rattner, Summers, and Geithner felt that many of its customers would have moved from the company's Jeeps and trucks to other American-made vehicles. Ford and GM would have ramped up production of similar vehicles and any Chrysler job losses would've been compensated for in the long run, he said. It was the overall dismal economic climate that saved Chrysler: The task force felt it couldn't allow for 300,000 jobs to be lost in the depths of the recession.
In the end, after their trips through bankruptcy court, the government poured $50 billion into GM and $12 billion into Chrysler. Because of the size of the GM infusion and its weak financial state, Rattner said the task force had no choice but to convert loans into company stock. He claimed that the capital infusion and the government's overall efforts were made possible because Congress left ample room to maneuver under the rules it set for the Troubled Asset Relief Program. And that was a good thing, considering how events played out, he added: "If we had not had TARP money available and had had to seek congressional approval for each use of capital, I'm convinced that one or both of the automakers would've been forced to liquidate."
Now the clock is ticking on GM to show it can win back sales, sell its shares again to the public, and get the government off its back. "I believe the pressures of government involvement in a company are there," says Martin Zimmerman, a former chief economist at Ford. "It's not that the Administration will necessarily want to make decisions, but Congress is a pretty large board of directors."