Overhaul (42 page)

Senator Kay Bailey Hutchison, a Republican from Texas, was among the first politicians to react. She threatened to hold up a war-funding bill because of the dealer closings in her state. Many other legislators who had insisted that we keep our hands off the auto companies started attacking us for doing exactly that. Then the National Automobile Dealers Association
—NADA—
came out against us, denouncing the dealer-reduction programs in full-page ads. "Cutting dealers at this time would do absolutely nothing to make either GM or Chrysler more viable," read the text over the signature of the association's chairman, John McEleney. "The idea that dealer numbers should be rapidly and drastically reduced apparently comes from Wall Street advisers." I was mystified. Most
NADA
members would be keeping their franchises and would benefit from the elimination of the marginal stores—not to mention the fact that, absent our intervention, they all would have gone out of business.

The Senate Commerce Committee quickly summoned Henderson and Chrysler's sales and marketing chief, Jim Press, to testify on Capitol Hill. Sitting before the committee on June 3, they were castigated before they could say a word. Committee chairman John D. Rockefeller IV, a West Virginia Democrat, called the closings "a nationwide tragedy that a lot of us feel strongly about." Jim DeMint, a South Carolina Republican, said he was getting to know what "government-managed economies feel like."

We were deluged with calls from national, state, and local officials pleading for individual dealers. As tempting as it felt, it didn't strike me as a great idea for Team Auto to blow off these requests. Instead we painstakingly responded to each one, often by consulting GM or Chrysler for background on why a particular store was being closed. Invariably, we would conclude that the decision was appropriate and try to convey that gently to the aggrieved official. This sometimes took two or three tries, and we didn't always succeed. But we never asked either company to reverse a decision.

Meanwhile, GM started a dialogue with
NADA
aimed at winning its support. In early June, the trade association agreed to stand down after the automaker made relatively minor changes in the wind-down contracts. But when
NADA
officials tried to avoid publicly announcing this course reversal, GM—with typical passivity—was prepared to let them. We felt otherwise. After checking with me, David Markowitz, who was closest to the negotiation, insisted that
NADA
put out a press release saying that while it would not endorse the new agreement, "the revised document addresses the majority of dealer concerns."

But almost immediately, the statement mysteriously disappeared from the
NADA
website, which
NADA
attributed to "technical problems." The trade group resumed its carpet-bombing. On June 11, McEleney published an op-ed in
USA Today
proclaiming, "Dealers Aren't to Blame."
NADA
reminded me of the Newspaper Guild, another organization I'd seen try to protect underperformers at the expense of those who delivered.

With our last big announcement behind us, we decided to meet with the editorial boards of major newspapers and CNBC to defend the Obama administration's handling of Chrysler and GM. Notwithstanding our regular conversations with editorial writers, we'd been frustrated by the continued second-guessing of our actions. Had we tilted in favor of labor and against capital, particularly in the case of Chrysler? Had we overspent? Should the government have intervened at all, as opposed to leaving GM and Chrysler to the mercy of market forces? The questioning at our visits to the
Wall Street Journal
and the
New York Times
was predictable.

The
Washington Post
editorial page, under Fred Hiatt, was not the reflexively liberal voice that most would have assumed. It had opposed the notion of government bailouts. And now, over sandwiches in a windowless conference room at the
Post's
headquarters, Chuck Lane, its lead writer on auto issues, took us on. Coincidentally, my former employer, the New York Times Company, had just asked news personnel at its
Boston Globe
subsidiary to take substantial wage cuts as part of reducing operating losses. Why, Lane asked in his thoughtful but feisty manner, shouldn't workers at GM be asked to take outright reductions in pay? I repeated my mantra about needing workers to make cars and the impracticality of replacing UAW members with a non-union labor force. And I noted that with new workers coming in at much lower pay, wages paid by the Detroit Three would soon reach those of the transplants. Lane, who got increasingly agitated, almost to the point of tears, was not satisfied, and understandably so. Even if the complex projections of future labor costs proved accurate, the UAW had sold out new hires—who would be paid far less than workers at the Japanese transplants—in order to protect the wages of existing UAW members.

We were determined to use GM's time in bankruptcy to jump-start changes in the company's culture—to my mind, the critical unfinished step in the overhaul. When the Treasury press department got a request from Micheline Maynard, a senior reporter who had written a well-regarded book called
The End of Detroit,
in connection with a long article she was planning on GM, I readily agreed to an interview.

The urgency of my concern about GM's culture jibed with her knowledge of the company's long-standing weaknesses, and the resulting front-page story declared: "...It will be up to the federal government, which will own a majority of General Motors when it emerges from bankruptcy, to tackle what is perhaps the most difficult challenge in Detroit: transforming GM's insular culture—at times as bureaucratic as the government's—to make the company more competitive. If the effort fails, the Treasury may never recoup the $50 billion it has provided GM."

What the story didn't mention was the fact, very much on my mind, that this was Team Auto's last chance to influence events. The administration was going to adhere to its explicit commitment that once GM emerged from bankruptcy, it would manage its own affairs, for better or worse. It wouldn't be our baby anymore.

Ed Whitacre, with his reputation for toughness and intolerance of bull, was an important symbol of what we were trying to achieve. Announcing his appointment as chairman on June 9, I had left nothing to chance. I asked the executive-search firm Spencer Stuart to run a background check to make sure there were no skeletons in his closet. I even had Haley research his political contributions. I was delighted to hear that Ed had served as campaign finance chair for Kay Bailey Hutchison. I was equally pleased to learn that he had contributed to the campaigns of other Republicans, such as John McCain, as well as a handful of Democrats, including Rahm Emanuel. While the White House had never tried to influence our management or board choices, I knew that Obama's critics would look for any way to impute partisan motives. (Indeed, I later learned that the
Wall Street Journal
ordered up a story on the "real" reason Ed was selected, but as there was no "real" reason, the story never ran.)

We believed, and had told the world, that GM's bankruptcy would take longer than Chrysler's—between sixty and ninety days—because of GM's vastly larger scale and global operations. But Harry and Matt decided to try to do better. In the fine print of the $33.3 billion of debtor-in-possession financing that we'd extended to the company, they set a deadline of July 10. At the end of that time—a scant forty days!—either the Treasury would have to extend its financing or GM would be forced to liquidate. This was the financial equivalent of putting a gun to the heads of the bankruptcy judge, GM's stakeholders, and of course Team Auto itself.

The success of the gamble depended in no small part on Chrysler. If it could clear the bankruptcy court quickly, then a precedent would be set for GM. But while President Obama had declared victory in the Chrysler bankruptcy as part of his June 1 address, that deal hadn't actually closed. The early weeks of June were nerve-racking for us, thanks to Tom Lauria, the renegade lawyer who helped short-circuit the potential eleventh-hour creditors' settlement. Because of a suit he'd filed, Chrysler's sale of its operating assets to the new Chrysler had gotten hung up.

Lauria was now representing a group of Indiana pension funds that held less than 1 percent of Chrysler debt. The funds were scavengers; they'd paid 43 cents on the dollar for some $42.5 million of debt and were holding out for 100 cents on the dollar. Judge Arthur Gonzalez of the bankruptcy court had overruled their claim, but Lauria appealed, first to the federal circuit court in Manhattan and then, after being summarily turned down there, to the U.S. Supreme Court.

We thought this was ludicrous—no judge had so much as tipped his hat to the objectors' case—and expected a quick rebuff from the "Supremes." But one day passed, then another, without a decision. I began to feel as though we were watching the Vatican to see if white smoke or black smoke emerged. I refused to give Lauria the satisfaction of getting nervous. But we wondered: What could the delay mean? What if the justices took months to rule? What if they decided we had overstepped the limits of the bankruptcy code? Larry finally called Elena Kagan, his ex-colleague from Harvard who was then Obama's solicitor general, the official who represents the U.S. government before the Supreme Court. She reassured him not to read anything into the delay. At last, on June 9, the justices released a terse, two-page decision in which they found that the Indiana funds "have not carried [the] burden" of demonstrating the need for the Supreme Court to intervene. The Chrysler deal was free to close. We never learned the reason for the justices' delay.

Ed Whitacre was ready for his first trip to GM headquarters the following week. Having had no experience as a corporate executive, I was eager to observe a top-notch one at work. Fritz and I had developed an agenda for him that included, at Ed's request, one-on-one meetings with each of the senior executives at GM. For all of his reputation as a tough guy, I was fascinated to see him take the time to get to know the individuals as people. By the end of the day, he could talk knowledgeably about each executive's background, personality, and aspirations.

High on my agenda for that visit was to persuade Fritz to overcome his protectiveness and replace GM's poorest performers with executives who could spark change. Ray Young was at the top of my list. The CFO had not improved in all the time we'd worked with him. He was still making mistakes that were causing us nightmares. The day after GM filed for bankruptcy, for example, he told reporters that as a private company, the automaker was "not going to disclose information except to the shareholders." Could he possibly have said that? It should have been obvious to him that if anything, as a business that was now 61 percent taxpayer-owned, GM would be making more robust public disclosures than before the bankruptcy.

While Ray had been CFO for only fifteen months, he had spent virtually his entire career within the orbit of GM's treasury. The fact that GM had no one more qualified to be its chief financial officer spoke volumes about the quality of the company's talent pool.

To push Fritz, I had lined up an interim CFO: John Alchin, a retired CFO of Comcast, which had been a client of mine for two decades. John was capable and available and had an easygoing, warm personality. If Fritz would view any newcomer as nonthreatening, I figured, it would be him. I persuaded Fritz to at least let me invite John to spend a day with us in Detroit. Everyone who met him that day found him professional and collegial. But Fritz dug in his heels, arguing that we were at too critical a moment to bring in a new CFO. This was precisely why Harry and I wanted one! But the best we could do was to get Fritz to promise that he would seek a permanent replacement for Ray as soon as the bankruptcy was behind us.

We encountered many other questionable personnel situations, such as one involving Katy Barclay, GM's head of human resources. I did not know her well, but Fritz had correctly determined that she should be replaced. Then we learned that GM did not intend to leave her contract behind in Motors Liquidation Company, which would have saved Shiny New GM as much as $2.5 million. When David and I called Fritz to ask about this, he said he needed her for the next month or two. "What HR person on earth is worth a million dollars a month?" David stormed. Despite our protests, GM honored her contract.

Another underperformer was GM's chief lobbyist in Washington, Ken Cole. We'd found him utterly ineffective, most recently in critical negotiations with Congress about the dealers. Yet when we complained to Fritz, he replied that Cole's relationships were with Republicans, implying that such strengths would be invisible to us Obamaites. To double-check, we made inquiries among Republicans and got the same reaction to Cole as among Democrats. (Among the first personnel decisions that Whitacre made when he became CEO was to replace Cole.)

My frustration with Fritz was still on my mind a day later, back in Washington, when Ron and I broke bread with Carlos Ghosn, the Renault and Nissan CEO. Carlos had first sought us out a month earlier, for reasons that remained mysterious. He'd been out of the mix in Detroit since the previous summer, when he'd backed away from bringing Chrysler into the global alliance of Renault and Nissan. Steve Girsky, the former Wall Street analyst whom I'd tried to recruit for Team Auto, was the one who now put us in touch.

My first meeting with Ghosn had been for dinner at my apartment in New York, and my impression of him from that evening was still vivid: the fifty-five-year-old was intense—almost like a coiled spring—earnest, and precise, all wrapped in a compact package of determination and drive. He had been jetting around the globe running his worldwide empire for almost a decade and showed no sign of fatigue. I quickly discovered that he was not big on small talk. Neither am I, yet we had an amiable three hours of conversation, almost entirely about business, particularly how he managed two auto companies that were half a world away from each other.