Bloomberg News

Obama Car Czar Back in Detroit Balancing Union, Corporate Roots

September 20, 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 is back in Detroit two years after helping run President Barack Obama’s auto-industry team. This time, he took one role defending the city’s workers and another that puts him at odds with carmaker employees.

Bloom, now a Lazard Ltd. (LAZ:US) vice chairman, was hired by Fiat SpA (F) Chief Executive Officer Sergio Marchionne to wrest concessions from a union health care fund that will help finance Chrysler’s takeover, according to people familiar with the matter. At the same time, Bloom is advising Detroit retirees fighting benefit cuts in the city’s $18 billion bankruptcy.

The unrelated jobs mean Bloom, 58, who helped save Chrysler in 2009 by taking it to bankruptcy and turning it over to Fiat, will reunite with an old corporate friend and renew his populist stand for the underdog. He’s had experience in both arenas. The banker with a Harvard Business School degree worked with companies on hundreds of bankruptcies and also spent 13 years advising the United Steelworkers union president.

“Bloom plays a unique role,” said Harley Shaiken, a labor professor at the University of California, Berkeley. “You may not like what he says, but you can count on it and he understands the dynamics of both sides.”

As a boy, Bloom spent summers at Habonim camps, Jewish youth programs modeled on Israel’s kibbutzes that stressed the value of manual labor and social justice. As a teen he boycotted green grapes in support of Cesar Chavez, the farmworkers’ union leader.

‘Worker Capitalism’

After Harvard Business School he landed on Wall Street. He helped industrialist Wilbur Ross create International Steel Group Inc. Even in his earlier stint at Lazard, Bloom embraced “worker capitalism,” investment banker Steven Rattner said in a 2010 interview. Rattner recruited Bloom to be his deputy as Obama’s auto-bailout czar and Bloom succeeded him when he left.

Bloom will assist the Fiat CEO in trying to strike a deal with the United Auto Workers’ retiree health-care trust, the only other shareholder in Chrysler, according to people familiar with the talks. Marchionne needs an agreement to complete his takeover of the U.S. auto manufacturer.

“If he’s being paid by Sergio, he’s going to try to defend his interests but I suspect he will do it in a way that recognizes the need for the other side and in a way that is candid and both sides can count on,” Shaiken said. “Those are valuable assets in any negotiation.”

Industry Ties

Bloom’s new mandates reflect his longstanding ties to the auto industry and place him on opposite sides of the table from officials he worked with in an earlier era.

The Detroit bankruptcy role pits Bloom against Detroit Emergency Manager Kevyn Orr, one of the lawyers for Chrysler and Marchionne when Bloom helped lead the $80 billion bailout that saved General Motors Co. and Chrysler in 2009. Andrew Yearley, who negotiated opposite Bloom for the UAW during the Chrysler bankruptcy, now will be his partner in Detroit.

Bloom and Yearley will provide financial advice to the committee representing Detroit retirees in the bankruptcy case.

Judi Mackey, a Lazard spokesman, confirmed the Detroit role. She declined to comment on the Fiat position.

At Fiat, Marchionne, 61, has spent the past four years seeking to unify the companies so they can better compete with Toyota Motor Corp. (7203), GM and Volkswagen AG. (VOW) A fully integrated automaker would feature the mass-market Fiat, Chrysler, Jeep and Dodge brands, along with high-end Maserati and Ferrari cars.

Valuation Dispute

Marchionne first must reach a deal that resolves a valuation dispute with the trust, known as a voluntary employee beneficiary association. The U.S. carmaker may file initial public offering documents this month with the U.S. Securities and Exchange Commission to list a 16.6 percent stake. The trust, which owns 41.5 percent of Chrysler, has the legal right to initiate the sale under the terms of its holding.

Bloom worked closely with Marchionne in 2009 when the Fiat CEO negotiated with the U.S. Treasury to acquire a controlling stake in Auburn Hills, Michigan-based Chrysler. A representative at Turin, Italy-based Fiat declined to comment.

Bloom has been working with Marchionne for months and is helping him understand the priorities of the UAW and the health-care trust, one of the people said. Because of his longstanding ties to labor, Bloom has also served as a backdoor channel to the UAW, the person said.

IPO Plan

Marchionne’s ultimate goal is to use the IPO process to set a market value for the trust’s holding and force the labor group back to the bargaining table, people familiar with the matter said earlier this month. The trust has been holding out on selling its Chrysler stake, seeking at least $1 billion more than Fiat wants to pay. The two sides are in court over the value of the initial shares that Fiat has options to buy.

JPMorgan Chase & Co. will be the lead underwriter of the offering, said a person with knowledge of the plan. The person asked not to be identified because the preparations are private.

Tasha Pelio, a JPMorgan spokeswoman, declined to comment.

In Detroit, Bloom will need to argue against trimming benefits. 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, Michigan Governor Rick Snyder, have countered that under U.S. bankruptcy law the police, fire and city retirees are unsecured creditors, like bondholders, and aren’t exempt from potential cuts.

Bill Nowling, a spokesman for Orr, had no comment.

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

Growing Industry

The auto bailout that Bloom helped lead and Orr advised on has produced a U.S. car industry with sales headed for a fourth straight year of annual increases. Chrysler has reported 41 straight months of gains, and GM (GM:US) 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.

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.

Detroit Retirees

Orr 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 joined with unions earlier this month in claiming 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.

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 either that 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.

Business Cases

In business cases, where 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.

Marchionne praised Bloom in a 2011 interview for working around the clock to complete the deal on Chrysler in 2009, saying he once had a conversation with the banker on the steps of the U.S. Treasury building during a cigarette break.

“I asked him: what the hell are you doing here?” Marchionne said at the time. Bloom “turned around and he said, ‘when I die, I want to be able to put on the tombstone: he made the difference.’”

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

To contact the reporters on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net; Tommaso Ebhardt in Milan at tebhardt@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Chad Thomas at cthomas16@bloomberg.net


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