Bloomberg News

Obama Auto Czar Bloom Said to Face Ex-Ally in Detroit Bankruptcy

September 19, 2013

Obama Auto Czar Ron Bloom

Ron Bloom, a senior adviser to Lazard Ltd., rejoined Lazard in February 2012 after resigning in August 2011 from a White House post advising President Obama on manufacturing topics. Photographer: Peter Foley/Bloomberg

Ron Bloom, who helped lead President Barack Obama’s auto team, will advise Detroit retirees fighting benefit cuts in the city’s bankruptcy, according to people familiar with the decision.

Bloom will provide financial advice to the committee representing retirees in the bankruptcy case, said three of the people, who asked not to be identified because the hiring decision isn’t yet public.

The hiring pits Bloom, a Lazard Ltd. (LAZ:US) vice chairman, against Detroit Emergency Manager Kevyn Orr, who was one of the lawyers for Chrysler Group LLC’s predecessor when Bloom led an $80 billion bailout that saved and helped revive General Motors Co. (GM:US) and Chrysler in 2009.

The pensioners have said the Michigan Constitution protects the unfunded benefits from proposed cuts of as much as 90 percent in the $18 billion bankruptcy. Orr and his boss, state Governor Rick Snyder, have countered that the police, fire and city retirees are unsecured creditors, like bondholders, under U.S. bankruptcy law and aren’t exempt from potential cuts.

Bill Nowling, a spokesman for Orr, didn’t immediately respond to an e-mail requesting a comment. Claude D. Montgomery, an attorney with the Dentons law firm, which represents the retiree committee, declined to comment. Judi Frost Mackey, a Lazard spokeswoman, didn’t immediately return a phone call seeking comment.

Second Adviser

Working with Bloom will be Lazard managing director Andrew Yearley, said three of the people. Yearley was lead adviser to the United Auto Workers union in negotiating with the U.S. Treasury in the GM and Chrysler bailouts.

Bloom, 58, rejoined Lazard in February 2012 after resigning in August 2011 from a White House post advising Obama on manufacturing topics. Orr, 55, who advised on the Chrysler restructuring, left the law firm Jones Day in March to take the job overseeing Snyder’s takeover of Detroit.

The industry bailout that Bloom led and Orr advised on has U.S. auto sales poised for the fifth straight year of annual increases. Chrysler has had 41 straight months of gains and GM has said it expects a modest improvement over its $6.19 billion in earnings (GM:US) in 2012 as it heads for its fourth consecutive annual profit. Next year, U.S. auto sales are projected to exceed 16 million for the first time since 2007.

Bloom became Obama’s top manufacturing adviser after the auto bailouts. Before joining the bailout team in 2009, Bloom was an adviser to the United Steelworkers union and a manufacturing specialist at Hamilton, Bermuda-based Lazard.

Protecting Pensions

During the auto bailouts, Bloom argued that pensions for UAW members deserved protection even as bondholders and banks faced cuts because the workers were necessary to build cars and trucks once the companies exited court protection. A bankruptcy judge supported that position.

Detroit’s retired public workers will be represented by nine people, including at least two union officials, on a panel that may negotiate with the city, a U.S. trustee monitoring the bankruptcy decided last month.

Orr, 55, said in a July interview that a retiree committee is needed because, unlike union members or bond investors, the pensioners don’t have a strong organization backing them.

Detroit retirees earlier this month joined unions in claiming that the bankruptcy law that lets municipalities seek court protection from creditors violates the U.S. Constitution.

The groups, which want the bankruptcy case thrown out in a hearing next month, also point to a line in the Michigan Constitution that says public-worker pensions are a contractual right that cannot be undone.

Constitutional Issues

The retirees argue that Chapter 9 of the U.S. Bankruptcy Code can’t trump a state constitution. The groups asked U.S. Bankruptcy Judge Steven Rhodes to find that either the bankruptcy filing doesn’t meet the tests set out in Chapter 9 or that Chapter 9 itself violates the U.S. Constitution because it interferes with Michigan’s sovereignty.

In business cases, the types in which Orr has more experience, federal courts have routinely upheld the power of bankruptcy judges to impair or cancel contractual rights, even those protected by state laws.

Before joining Jones Day, Orr held several U.S. government jobs, including director of the Justice Department unit that oversees bankruptcy cases and trustees, according to the law firm.

As an adviser to the United Steelworkers for 13 years, and before that as a manufacturing specialist at Lazard and his own boutique investment firm, Bloom participated in more than 100 bankruptcies and restructurings, trying to balance the realities of business with the need for jobs, he said in a 2010 interview.

The case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

To contact the reporters on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net; Steven Church in U.S. Bankruptcy Court in Detroit at schurch3@bloomberg.net

To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net; Tom Giles at tgiles5@bloomberg.net


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