Who's to Blame for GM's Bankruptcy?

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Government Wasn't an Issue

But GM had to respond to the Japanese challenge without the help of the federal government. The Clinton Administration, as many before it, simply could not figure out how to force the Japanese to open their auto market, so in 1995 after a bout of highly publicized negotiations, it declared victory, even in the obvious face of failure. And the Clinton Administration was also unable to address the absence of a national health-care system. These two failures were huge, seen in retrospect.

In the ethos of the time, however, government did not matter. Rick Wagoner; as my book chronicled, encouraged the company to absorb Toyota's methods, which it did almost entirely. Wagoner's decision to hire Lutz in 2001 resulted in dramatically improved styling and design. Wagoner invested in innovation once again—again with Lutz egging on the whole organization—as GM decided to attempt to leapfrog Toyota's Prius hybrid with a brand new lithium-ion battery-powered Chevrolet Volt. Wagoner integrated the far-flung global operations. He centralized management into one Automotive Strategy Board and he persuaded the UAW to assume responsibility for its own medical costs. By early 2008, it was credible to argue that GM was on the way to a successful transformation, one of the most impressive in U.S. economic history.

But then there was the one-two punch of high gas prices and the global economic downturn. Detroit was caught off guard when gasoline prices reached $4 a gallon in the second quarter of 2008. The U.S. consumer, after years of inattention and disbelief, flocked to more fuel-efficient, largely nondomestic vehicles. But at least people were still buying cars. When the economy collapsed, so did car sales.

A White House Band-Aid

That was followed by yet another rude awakening last November when the then-CEOs of GM, Ford (F), and Chrysler came to testify in Washington, D.C., and found out that the government wouldn't be bailing them out. Southern Republicans, many of whom represented states with nonunion auto factories, chewed the CEOs up before the cameras. Newly powerful California environmentalists assaulted them. The center of the national consensus regarding the importance of the domestically owned auto industry had shifted, and American media coverage was also thoroughly hostile.

The Bush Administration gave a Band-Aid to GM and Chrysler in the form of a bridge loan to get them through to the early days of the Obama Administration. But then came the final surprise. Industry observers widely assumed that Obama, a Democrat from Chicago, understood the manufacturing base of the Midwest and would help it. The fact that the UAW had helped deliver five states in the Midwest to Obama deepened that assumption.

But Obama turned to other members of his political alliance for answers. From New York, he brought in investment banker Steve Rattner, a major fundraiser, to head the government's automotive task force. Rattner arrived on the job with the assumption that Chapter 11 bankruptcy was the right course for GM, and promptly sacked Wagoner when he demonstrated signs of resistance. Wagoner's heir apparent, Fritz Henderson, was elevated into the CEO position. Meanwhile, Obama tilted toward the California environmentalists by pushing through new fuel-efficiency standards, which would add another layer of cost to production.

And so the mighty General Motors, now nicknamed Government Motors, was pushed into bankruptcy. Rattner and his allies in the investment banking and bankruptcy-law industries insisted it could unfold in 60 days and that a new GM would rise from the ashes, phoenix-style. But the odds were against it working. U.S. bankruptcy law had never applied to a global corporation, one with thousands of suppliers and dealers.

Yet it wasn't Rattner's fault, nor that of the Obama Adminstration, high oil prices, Toyota, fickle consumers, the recession, or high labor costs. Whose fault was it? The answer: everyone's.

Return to the table of contents for our special report, General Motors' New Landscape.

William J. Holstein is the author of Why GM Matters: Inside the Race to Transform an American Icon (Walker & Co., 2009). For more of his work, visit www.williamjholstein.com.

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