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Former Car Czar Rattner: No Reason GM Can’t Succeed

October 21, 2009 at 12:00 AM EDT
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"People will start buying cars again," former car czar Steve Rattner tells Judy Woodruff. He also discusses ousting GM's CEO and how the auto industry will evolve.
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GWEN IFILL: Next: our interview with the man behind the overhaul and rescue of Detroit’s auto companies.

Judy Woodruff has the story.

JUDY WOODRUFF: When the financial crisis hit last fall, it was the tipping point for Detroit’s long-ailing auto industry. Both General Motors and Chrysler ultimately filed for bankruptcy as part of a larger restructuring.

And both sought tens of billions of dollars in a government bailout from the Bush and Obama administrations combined. But the money came with demands and changes from President Obama’s task force, including the ouster of GM CEO Rick Wagoner.

Steve Rattner was the chair of that auto task force. He’s out today with a new article in “Fortune” magazine laying out his role.

And he joins me now.

Steve Rattner, thank you for being with us.

STEVEN RATTNER: Thanks for having me, Judy.

JUDY WOODRUFF: We are only six months into the new world of the auto industry. Why write this right now?

STEVEN RATTNER: Well, I thought it was important, really, to set the — to write a historical record.

There were many questions raised about why we did, many insinuations, accusations that we had acted improperly, that the government had run rampant, that this was creeping socialism.

And I feel very proud of the work that we did under President Obama’s direction, and just felt that people ought to understand how we thought about it.

JUDY WOODRUFF: I guess the big question still on many people’s minds is, was it really necessary for the federal government to bail these two companies out?

STEVEN RATTNER: This is one of the most important questions that people often get wrong.

There really were only two choices. One, the federal government provide financing to restructure these companies, or, two, they close their doors, liquidate, and over a million people are out of work within a week.

You have to remember that, back in March, when we were doing this, the capital markets were frozen. There was no private financing. These companies were out of money. There was nothing in the cash register. And there’s literally not a way to make a payroll if the federal government hadn’t stepped in.

Alternatives to bailout

Steven Rattner
Former Chair of Auto Task Force
There is an argument...that letting Chrysler go would provide more buyers for Ford, more buyers for General Motors, and, on balance, after the passage of time, jobs.

JUDY WOODRUFF: But there were other voices saying, you -- you did have another choice. I mean, there were people saying, well, if you let, say, Chrysler go under, that the kind of -- the people who wanted to buy their kind of cars could simply turn to Ford or General Motors.

STEVEN RATTNER: That's a slightly different question. And that's a fair question. And, as I say in the article and as I have said elsewhere -- and it's been reported -- this was a very difficult discussion -- decision that President Obama had to face, because there is an argument, exactly as you said, that letting Chrysler go would provide more buyers for Ford, more buyers for General Motors, and, on balance, after the passage of time, jobs.

But the president decided, based on a lot of discussion with his advisers, that, as we were sitting there in March -- remember, this was the bottom of the stock market, this was the bottom of the economy, this was the bottom -- we were losing 600,000, 700,000 jobs a month at that moment -- that even having 300,000 people in a very concentrated area lose their jobs in one day -- which is what would have happened if Chrysler had gone away -- was just simply not acceptable, particularly because we had a viable alternative.

We had the affiliation, the alliance, if you will, with Fiat, which we felt very comfortable, still feel very comfortable, was viable. And, therefore, it was a good use of taxpayer dollars.

JUDY WOODRUFF: Any doubt in your mind that there would have been a loss of 300,000 jobs at Chrysler if you had gone another way?

STEVEN RATTNER: No, there was absolutely no doubt -- well, 300,000, including suppliers, dealers, all of that. There was no doubt.

They -- again, there was no private financing. There was no other source of capital. So, we -- we were very realistic. The president was very realistic. He understood that his choice was between letting Chrysler go away and providing taxpayer financing of Chrysler, that there was no other magical solution that was going to appear over the horizon.

JUDY WOODRUFF: You write, Steven Rattner, that -- that you faced even greater management challenges, you said, at -- at GM.

You wrote, "stunning cultural deficiencies." What did you mean by that?

STEVEN RATTNER: It was -- I had heard a lot. I was not a Detroit guy. I had heard a lot over the years about how GM -- about how Detroit was an insular culture, not a lot of new blood, off by itself.

But I must say, all of us on the task force were quite shocked by what we actually found. It was a place where people began their careers and ended their careers, and really spent a lot of time among themselves. And there was just not a lot of fresh thinking or new ideas, as well as a lot of isolation between the senior-most people and the rank-and-file and things like that.

Firing Rick Wagoner

Steven Rattner
Former Chair of Auto Task Force
I think people have really overreacted to this. The government made similar decisions at AIG, at Fannie Mae, at Freddie Mac

JUDY WOODRUFF: People still bring up the fact that the government went in and fired the CEO of a big company, of GM, Rick Wagoner.

How awkward, how difficult was that? How -- how necessary was it?

STEVEN RATTNER: I think people have really overreacted to this.

The government made similar decisions at AIG, at Fannie Mae, at Freddie Mac, in the context of providing additional financial assistance. In the private sector, it was completely typical to ask for a change in management when you provide new capital to a management team that hadn't done the job.

This was a company that had burned through $44 billion of cash in 15 months, had burned through $20 billion, almost, of cash in the first quarter of 2009, had produced a February 17 viability plan that wasn't viable, was in denial about the magnitude of the problems and what needed to be done.

It seemed pretty obvious to all of us, including the president, that there needed to be a change in leadership. And, after this all happened, while the board was quite unhappy at the -- at moment, after it was over, most of them privately said to me or to one of my colleagues, "You did the right thing."

JUDY WOODRUFF: You seem pretty calm, cool and collected about this now, but how -- how hard was it at the time? Or was it?

STEVEN RATTNER: The -- changing the CEO or the whole thing?

JUDY WOODRUFF: Everything, I mean, going through all of it, the whole thing.

STEVEN RATTNER: The whole thing was -- was very traumatic, because I almost didn't take this job, as I wrote in the piece, because I looked at the situation, and I said, these companies are going to run out of money in a couple months. Bankruptcy is generally a multiyear process.

It was not -- it wasn't clear we were going to be able to restructure these companies. They had tried for -- people had tried for years to restructure these companies, and failed. How were we going to manage to do this in a couple of months?

But it's -- it's a little like the saying, never let a crisis go to waste. The urgency of this, the magnitude of the problem ultimately caused all the stakeholders to recognize they had -- they had to help.

Will taxpayers be repaid?

Steven Rattner
Former Chair of Auto Task Force
Taxpayers will get a good bit of it back. They won't get all of it back.

JUDY WOODRUFF: The government ultimately put in, we were just saying, $80 billion or so into GM and Chrysler and these associated companies. Are the taxpayers going to get their money back?

STEVEN RATTNER: I think the taxpayers will get a good bit of it back. They won't get all of it back.

And the way to think about that is, there was about $20 billion that went in before we did the actual restructuring, money that went in at the end of 2008, which is what I would call kick-the-can-down-the-road money, other money that we had to put along the way just to keep the lights on while we figured out what to do.

We can't expect to get that back. But the -- but the investment decision, as we should say on Wall Street, to put $30 billion into GM on the day of its restructuring, in the context of a restructuring, I think wee will get back.

Right now -- I won't go through all the math -- probably, it's worth $25 billion, even today, in the open market. And the company has, I think, very good prospects.

JUDY WOODRUFF: You used -- do you think it has good -- good prospects? I mean, people -- some people are looking at the industry and saying, is it ever going to come back?

STEVEN RATTNER: I do believe it has good prospects.

First of all -- and this may seem like an obvious statement, nobody has invented a substitute for the automobile. People are going to buy cars again. Can they put it off a little while? Can they defer their purchases? Sure.

But, right now, we're selling cars at a 10 million sales rate. And it's about a 15 million sales rate just to keep the fleet from getting older and older. So, I think, once we get through this economic crisis at the moment, people will start buying cars again.

Secondly, I think GM has better products than people give it credit for. They still have work to do. There's no question about that. But they have made strides. And I would give Rick Wagoner a fair amount of credit, as well as his colleagues, for having started that process.

And we gave them every tool. There is no reason they can't be successful.

JUDY WOODRUFF: You used the term creeping socialism a minute -- a minute ago. What is the exit strategy for the federal government?

Government Motors

Steven Rattner
Former Chair of Auto Task Force
Nobody in the Obama administration wants to be a shareholder of these companies a minute longer than is necessary.

STEVEN RATTNER: President Obama and his senior advisers, Larry Summers, Tim Geithner, have been very clear. We were not volunteers for this war. We were draftees. We were here because nobody else would be here, no other capital would be here.

They hate the idea of government ownership, let alone a majority ownership, of companies. Their goal, which I support, is to get out as quickly as practicable, not a fire sale, where we end up losing taxpayer dollars, but as quickly as the market will bear and as quickly as seems to be prudent. That's a decision that has to be made along the way.

I think we're talking about a few years, but -- but I have no doubt that nobody in the Obama administration wants to be a shareholder of these companies a minute longer than is necessary.

JUDY WOODRUFF: I ask you because people look at this and say, it sure -- it sure does look like the government is in this for the long haul.

STEVEN RATTNER: We did study other privatizations in Europe and elsewhere. And I would -- I would say, in candor, that the record of government ownership is generally a three-to-five-year process, with lots of outliers.

The government was in Conrail for a good while in this -- in this country. So, I don't want to kid anybody. Unfortunately, we are stuck for a little while. But I just want to be clear as to the goal, the motives, the -- the impetus is really all in favor of getting out as soon as practicable.

JUDY WOODRUFF: Before we go, Steve Rattner, I want to ask you about the fact the New York attorney general is investigating your former investment firm, Quadrangle Group, and you for payments to a political consultant in connection with winning investments from the New York pension fund.

You ended up stepping down from that firm. You stepped down from your position with the auto restructuring group shortly after all this came out.

Can you bring us up to date on where that investigation is?

STEVEN RATTNER: You know, Judy, we're here today to talk about cars, which I'm happy to do. But these other matters, we will leave, for now.

JUDY WOODRUFF: But the investigation is ongoing?

STEVEN RATTNER: I'm not here to talk about that.

JUDY WOODRUFF: All right.

Well, Steve Rattner, we thank you very much for talking with us. We appreciate it.

STEVEN RATTNER: Thank you, Judy.

GWEN IFILL: On our Web site, NewsHour.PBS.org, you can find a slide show on GM's history and a link to Steven Rattner article in "Fortune" magazine.