Rattner defends automaker rescue, says some investment is lost
Thursday, October 22, 2009
The U.S. government's stake in General Motors is currently worth about $25 billion, or about half the amount it poured into the ailing automaker, the former chief of the Obama administration's task force on the auto industry said Wednesday.
But in his most extensive remarks since leaving the post in July, Steven Rattner defended the Obama administration's decision to rescue U.S. automakers.
Rattner said there's "a good chance" the United States can recover the $30 billion invested in GM by the Obama administration, which required the company to shrink and reorganize in order to get the money. But of the other roughly $20 billion previously lent to GM, he said, "I don't think we are going to see [it] again."
The remarks of the Wall Street financier, which came in a speech Wednesday sponsored by the Brookings Institution, offered an account of how U.S. policymakers came to their decisions to oust GM boss Rick Wagoner, run GM and Chrysler through bankruptcy, and take ownership stakes in each of the companies.
The decisions, he noted repeatedly, came as the U.S. economy was foundering, and he disputed critics who characterized the decision to rescue the companies as a sign of "creeping socialism."
The loss of GM and Chrysler would have cost more than a million jobs in the short run and pushed unemployment rates in several states above 20 percent, Rattner said. Moreover, because GM was a global company with the second-largest market share in the United States, "we soon could not imagine this country without an automaker of the scale and scope of General Motors."
But exactly how to revamp a company that had long been in decline posed difficult questions, and some of Rattner's harshest assessments concerned the management and culture of GM, once one of the nation's leading corporations.
"Everyone knew Detroit's reputation for insular, slow-moving cultures," Rattner wrote in Fortune magazine, in a piece also published on Wednesday. "Even by that low standard, I was shocked by the stunningly poor management that we found, particularly at GM, where we encountered, among other things, perhaps the weakest finance operation any of us had ever seen in a major company."
Making matters worse, the company's business plan "evinced a state of denial," the board was "utterly docile in the face of looming disaster," and the company's leaders blamed everyone but themselves for the automaker's quagmire, Rattner said.
The Obama team decided to cut Wagoner and half the board and invest another $30 billion in General Motors, partly in exchange for 60 percent of the company's stock. Since GM stock is not traded publicly, it is difficult to value the government's stake. Rattner estimated it based on the current value of old GM bonds.
The task force chose Wagoner deputy Fritz Henderson to replace him, but not without some trepidation, because he is a longtime GM executive. Rattner insisted on Wednesday that the company still "needs a real housecleaning."
The decision to save Chrysler, which was "larded up with debt" and "hollowed out by years of mismanagement" was more difficult, and internal discussions went back and forth over whether to make the effort. Chrysler, they noted, had not one car that was recommended by Consumer Reports.
From "a highly theoretical point of view," the right decision might have been to "let Chrysler go," Rattner said. But "facing a short-term job loss of 300,000 amidst the worst downturn since the Great Depression, a liquidation felt like an unacceptable risk if Chrysler could be viable."