Overhaul (31 page)

Tim and Larry agreed that I should respond to Jimmy with an offer of $2.25 billion—an additional $250 million. But the offer was good only until 6
P.M.,
I told Jimmy, because of the President's speech. He had just a few hours to win over all the creditors and deliver the holdouts.

There was nothing more to do now except carry on with the final preparations for bankruptcy and wait to see if Jimmy could deliver. Jimmy gave the controls to his bespectacled head of syndicate, Andy O'Brien, who began working the phones. They soon assembled more than thirty consents. As 6
P.M.
approached, Jimmy reported he was still short more than a dozen answers. He asked for more time, which I doled out in increments, extending the deadline to 6:30, then 7:00, and finally 7:30.

As 7:30 neared, we were hearing through the grapevine that Jimmy was not going to get all of the consents in. I decided that time was up and called to thankJimmy for having tried. "I've gotjust five left," Jimmy pleaded. "Give me more time, Steve. I can get them." Reluctantly, I replied, "I can't, Jimmy. I'm sorry." We would go forward with the bankruptcy. His final request was that the President publicly recognize JPMorgan's efforts to be constructive.

Later in the evening, Matt was able to piece together what had happened behind the scenes, and it became clear that I had made the only decision possible. Not only had the holdouts—a handful of hedge funds—demanded $500 million to sweeten the deal, they had also wanted all the extra money for themselves, to the exclusion of the other lenders. That crazy proposal—which cost the creditors the $250 million that I had offered—was pushed by a lawyer named Tom Lauria, whom the hedge funds had hired. I had never heard of Tom Lauria, but Matt knew him well professionally; he regarded Lauria as one of the most undisciplined members of the bankruptcy bar, a self-promoter who would say or do almost anything.

My decision did not sit well with Chrysler, whose board of directors was in almost constant session as bankruptcy neared. Bob Manzo, the company's representative, continued to push for a deal. E-mailing Bloom and Feldman that night at 8:44, he urged them to reconsider the holdouts' proposal.

"That's too close to not exhaust every avenue to get this done," Manzo wrote. Feldman was furious that Manzo had gotten in the middle of the negotiations. "I'm now not talking to you," he fired back. "You went where you shouldn't."

Manzo tried to make amends, but Feldman ignored his e-mails and calls as he worked into the night putting the final touches on the bankruptcy petition. He finally responded to Manzo at 3:54
A.M.
"It's over," Matt's e-mail said. "The President doesn't negotiate second rounds. We've given and lent billions of dollars so your team could manage this properly. I've protected your management and Board and now your
[sic]
telling me you're going to try to put me in a position to have to bend to Lauria. That's BS."

At daybreak in Detroit, two hours later, Chrysler President Tom LaSorda e-mailed Manzo to ask if their last-ditch intervention had been successful. Manzo was direct: "Tom. Not good. Tried most of the night with no luck. These Washington guys want to show the market ... that they can be tuff."

That, of course, was not at all how we saw it. Nothing would have pleased us more than to avoid the bankruptcy of a major U.S. automaker.

The White House protocol resembled the one we'd followed a month earlier: a preliminary briefing for the media, outreach calls by President Obama from the Oval Office, then the televised presidential address. I had a chance to review his speech one last time. Despite his theatrics, Jimmy ultimately had been a positive force, and I had taken the mouselike step of inserting a thank-you to JPMorgan. I was also pleased to see that the White House had added language to echo some of the last-minute battles behind the scenes. Notably, the speech now included a searing criticism of "investment firms and hedge funds [that] decided to hold out for the prospect of an unjustified taxpayer-funded bailout." I was quite angry that a handful of investors had pushed Chrysler into bankruptcy (while costing themselves their share of the extra $250 million), so I welcomed that language.

We took some time in the Oval Office beforehand to underscore for the President the remaining uncertainty with GMAC and the risks that it held. Not wanting to publicize our difficulty with Sheila Bair, we had fudged the situation in the President's speech and in the fact sheet. The latter read: "The U.S. Government is supporting the automotive restructuring initiative by promoting the availability of credit financing for dealers and customers, including liquidity and capitalization that would be available to GMAC, and by providing the capitalization that GMAC requires to support the Chrysler business." In his calm way, the President took this in stride, and happily the media never probed the weasel wording to find out what was really going on with GMAC.

After President Obama completed his outreach calls, we made our way from the Oval Office to the first floor of the White House to assemble behind him as he announced to the nation that we were putting Chrysler into bankruptcy. This time, Ron and I merited inclusion as potted plants.

***

Sequestered in the West Wing for much of the morning, I was unaware of the drama that had unfolded for Matt Feldman and the bankruptcy team. Matt was working with Brian Deese on more White House talking points when his BlackBerry began buzzing. He saw a slew of urgent e-mails from Manzo. Matt stepped outside to call. "What happened?" he asked.

"You're never going to believe this," said Manzo breathlessly. The pressure of events had apparently gotten to Chrysler's bankruptcy lawyer, Corinne Ball. "She stood up at the board meeting and told the board that there was a real risk that Lauria was going to file an involuntary and that it would be a breach of the board's fiduciary duty not to file immediately to preserve venue."

Translated, this meant that she thought the holdouts would try to block us from filing the Chrysler case in New York federal court, which had the most experienced and professional bankruptcy judges. Instead they would file in a friendlier court. The White House was aware of this risk but didn't think it worth adjusting the plan.

"You've got to be kidding," Matt said. "Where is she?"

"She took her briefcase and the pleadings and headed downtown," Manzo replied. Feldman, mystified, called Corinne on her cell phone.

"Have you filed yet?" he asked.

"I just handed the clerk the petition," she said. Feldman, who knew everybody in the bankruptcy court, asked her to put the clerk, Vito, on the phone.

"Hey, Matt," Vito said.

"Have you put the petition on the system yet?"

"No, I was just about to."

Once the petition was keyed in, it would hit the Internet within twenty minutes. The President was not due to speak for ninety minutes. Matt asked Vito to give the phone back to Corinne.

"Corinne, Vito is going to hand you back the petition. You do not want to preempt the President. If you preempt the President, I'm telling you, I don't know that the financing is still available. You cannot do this."

"You don't understand," Corinne insisted. "There are reporters all over the place. They saw me go in. We've got to file." Matt asked her to put the clerk back on the line.

"Is there a place you can have Corinne sit so the press won't see her for the next hour?" Feldman asked.

"I have a desk in the corner," Vito said.

Just then a line from
Dirty Dancing
popped into Feldman's head:
Nobody puts Baby in a corner.

"Put Corinne in the corner," he told Vito.

And there she sat until President Obama uttered his first words.

The news of Chrysler's bankruptcy was explosive, of course. "Chrysler Pushed into Fiat's Arms," declared the
Wall Street Journal.
"Obama Vows Swift Overhaul as Chrysler Enters Bankruptcy," said the
Washington Post.
As we regrouped in Larry's office after the President's speech, Larry was unhappy with Obama's words about the hedge funds, thinking them unnecessarily harsh. He'd reviewed the speech in advance and blamed himself for not having spoken up. "I should have said something," he fretted.

For my part, I hadn't adequately anticipated the extent to which the President's statement, together with our disparate treatment of the various stakeholders, would constitute another frightening message to a Wall Street already shaken by repeated attacks from Washington.

What particularly upset the financial community was the fact that the senior lenders, who were "secured" and who ranked first in line among Chrysler's creditors, would not get all their money back, while certain unsecured creditors—most controversially, the UAW's
VEBA—
would be paid in part for
their
claims. Under the strict rule of priority in bankruptcy, senior creditors are intended to be paid in full before any other stakeholder gets a penny.

But bankruptcy law also provides that a new investor—which the government was, in effect—can allocate its capital however it chooses. We believed that it was in the taxpayers' interest to give Chrysler equity to Fiat in return for its technology and management. And we believed that giving the
VEBA
a mix of debt and equity was also good business—as Ron had told Jimmy, you need workers to make cars. And while the $2 billion that Chrysler's banks were getting was far less than the face value of their loans, it represented more than 100 percent of Chrysler's assets, as the company's liquidation value indicated. By that measure, they were getting more than they deserved. In fact, every single creditor of Chrysler received more than it would have in a liquidation.

What our critics also failed to recognize was that many creditors with the same rank as the
VEBA
got treated
better
than the
VEBA.
For instance, Dodge and Chrysler car owners with warranties were unsecured creditors too. Yet we gave them 100 cents on the dollar, because what consumer would buy another Chrysler if the company didn't honor its warranties? Similarly, most Chrysler suppliers received full payment, because without its suppliers, Chrysler would no longer be able to make cars. The 50 to 60 cents on the dollar we awarded the
VEBA
hardly seemed overly generous by comparison.

We would spend many hours during the ensuing months trying to explain that the shape of Chrysler's restructuring had nothing to do with the heavy hand of government and everything to do with the fact that Treasury was the investor of last resort, the only source of capital prepared to finance Chrysler. Even Jimmy understood this: "Treasury was holding four aces and I was holding the two of clubs," he would tell Wall Street colleagues. For our part, we reminded the skeptical of the golden rule of Wall Street: He who has the gold makes the rules. Or as my father used to say to his unruly children: "He who eats my bread sings my song."

D
ETROIT'S RENAISSANCE CENTER
—built in 1977 by Henry Ford II as a headquarters for his grandfather's car company—was supposed to be a symbol of a revitalized Detroit. That didn't pan out. Detroit's decay continued and Ford decamped to suburban Dearborn. The center's seven glass towers still dominate the skyline, but views from the upper floors reveal a lunar landscape of abandoned buildings and deserted streets that, for most, have symbolized this once thriving city for decades.

Now General Motors headquarters occupies Tower 300 of the RenCen. At 9
A.M.
on April 8, Harry Wilson and two Team Auto associates stepped off an elevator there, having fortified themselves with breakfast sandwiches at the McDonald's in the food court below. In the conference room on the thirty-seventh floor, the first cohort of GM executives was waiting, their backs to an expansive view of the Detroit River and the colorful electronic billboards of the modestly more prosperous city of Windsor, Ontario, beyond. Joining our Treasury trio was a clutch of consultants from Boston Consulting Group (BCG), led by Xavier Mosquet, as well as two bankers from Rothschild.

For the next eleven hours, the task force members watched a parade of GM executives flash tables, charts, and bullet points on the projection screen. Whether any of it meant anything would take time for Harry and his two assistants to figure out. Both were young Wall Streeters who had joined Team Auto just two days before. David Markowitz was a thirty-six-year-old University of Michigan graduate whom Harry had known from Goldman Sachs. As driven as Harry, he was also just as analytical and unaccepting of second-rate work. Yet the two were stylistic opposites: David's quiet personality and almost rabbinical manner complemented Harry's gregariousness. Sadiq Malik, at thirty, was a skinny, intense Pakistani American who had graduated near the top of his class at Dartmouth, taken a Harvard MBA, and worked at the Blackstone Group and other Wall Street firms.

The trio had arrived armed with a five-page, day-by-day outline of everything they intended to accomplish with GM over the next four weeks. Harry's objective was to tear General Motors apart and reassemble it as a profitable business. Everyone involved agreed that a total overhaul was necessary. The "viability plan" delivered by GM in February had proven management incapable of dispassionately and analytically creating an achievable business plan. While Ron and I contended with Sergio, the creditors, and the swarm of Chrysler-related problems, Harry's mandate was to design what we had taken to calling "Shiny New GM."

It was obviously a monster challenge. GM's was an antique, closed corporate culture. Old-fashioned notions of hierarchy definitely applied here. Above the floor where Harry's team set up shop were two floors of executive suites that could easily have been in a different tower—or a different city. The company's twenty or so top brass drove each morning into a private parking garage, where their cars would be fueled and cleaned. The half-dozen most senior executives used a special card to ascend in an elevator that would not stop at any other floor (no mixing with hoi polloi) before reaching thirty-nine, where they reigned in splendid isolation. Below, on thirty-eight, were no offices, only the boardroom, the executive dining room, conference rooms, and a guard, who sat behind an imposing round console receiving visitors.