Rattner Explains why Rick Wagoner was Fired
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Rattner Explains why Rick Wagoner was Fired
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Economy was bad? This is what he said in the interview:
There is alot you gloss over to come to that conclusion about Chrysler being "very fortunate" the economy was bad. You miss that GM would have been likely toast as well.
What he actually indicates on the video is not that Chryelr was worse than GM, but that with the government putting 60 billion dollars into GM, it would enhance their chance of repayment by letting Chrysler go, and let their potential buyers move to GM and Ford:
What seems to always be lost in these GM vs Chrysler bailout discussions is that it's GM that was the organizational basket case that needed government money to survive. Chrysler would have been a far cheaper fix, and from a strictly financial and organizational sense, was in better shape. despite this, the government was ready to let Chrysler go if Fiat did't partner with it and the UAW didn't bankroll the whole thing.
If you look, read, and listen to what Rattner said in that entire enterview (transcripts of the entire talk are on the internet), his harshes and most condemning comments are by far about GM:
He also recounts the day he actually told Rick Wagoner that he'd have to go, which Rick took very well. After a bit more conversation, Wagoner asked if Rattner was also going to fire the UAW's President.
Chrysler, on the other hand, it's problems were obvious and straighforward:
Here is the whole story for those who want more than sound bites 
http://money.cnn.com/2009/10/21/auto...n=money_latest
We were all shocked to realize that when the collateral damage of a Chrysler shutdown was factored in (like lost jobs at dealers and suppliers), the short-term effect of a Chrysler shutdown could be 300,000 more unemployed, similar to what was lost across the entire economy in the month of July.
What he actually indicates on the video is not that Chryelr was worse than GM, but that with the government putting 60 billion dollars into GM, it would enhance their chance of repayment by letting Chrysler go, and let their potential buyers move to GM and Ford:
Austan Goolsbee, a fearless former University of Chicago economist who had been with Obama since the beginning of his campaign, led the charge against Chrysler, marshaling strong factual arguments. One was that letting Chrysler go would give a needed boost to GM (and also to Ford), since most buyers of Chrysler's strongest products -- trucks, minivans, and Jeeps -- probably would turn instead to the other Detroit automakers.
What seems to always be lost in these GM vs Chrysler bailout discussions is that it's GM that was the organizational basket case that needed government money to survive. Chrysler would have been a far cheaper fix, and from a strictly financial and organizational sense, was in better shape. despite this, the government was ready to let Chrysler go if Fiat did't partner with it and the UAW didn't bankroll the whole thing.
If you look, read, and listen to what Rattner said in that entire enterview (transcripts of the entire talk are on the internet), his harshes and most condemning comments are by far about GM:
"...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."
"Rick set a tone of 'friendly arrogance' that seemed to permeate the organization,"
"I was stunned by the suggestion that the government, GM's only source of fresh capital, was somehow out of bounds for asking for the resignation of a CEO who had lost $13 billion of taxpayer money in three months and was now asking for more."
GM Chief Executive Officer Rick Wagoner and his team "seemed to believe that virtually all of their problems could be laid at the feet of some combination of the financial crisis, oil prices, the yen-dollar exchange rate, and the UAW. It seemed completely obvious to us that any management team that had burned through $21 billion of cash in a year and another $13 billion in the first quarter of 2009 could not be allowed to continue."
Chrysler, on the other hand, it's problems were obvious and straighforward:
Badly run after Daimler bought it in 1998, Chrysler had been sold nine years later at the peak of private equity mania to Cerberus Capital Management. Larded up with debt, hollowed out by years of mismanagement, Chrysler under Cerberus never had a chance.
We were shocked, even beyond our low expectations, by the poor state of both GM and Chrysler. Looking just at the condition of GM's finances and Chrysler's new-car pipeline, the case for a bailout was weak
During the March discussion on Chrysler, "after about an hour, the president asked for any final comments and then said, 'I've decided. I'm prepared to support Chrysler if we can get the Fiat alliance done on terms that make sense to us.'
"Like any patient that undergoes major surgery, a successful recovery is far from assured. For Chrysler, the biggest challenges are its need to regenerate its product line and manage a significantly leveraged balance sheet. In the case of GM, the overarching question is whether, without an infusion of new blood, its management team can implement the massive cultural change that is essential. But by dramatically lowering the break-even point for both companies, we believed we were creating a healthy margin for error."
http://money.cnn.com/2009/10/21/auto...n=money_latest
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I never said Chrysler was "worse than GM"
At 3:40 they talk about "How close to the brink Chrysler was in terms of losing support from the Obama administration"
"Chrysler was a very close call" and as you pointed out that it would make more sense to "bite the bullet" & let Chrysler fail since the govt would own 60% of GM & Chrysler being a competitor. "The total taxpayer cost would be less if you let Chrysler go"
At this point it doesn't matter...but I was shocked to hear how close they were to "letting chrysler go"
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What seems to always be lost in these GM vs Chrysler bailout discussions is that it's GM that was the organizational basket case that needed government money to survive. Chrysler would have been a far cheaper fix, and from a strictly financial and organizational sense, was in better shape. despite this, the government was ready to let Chrysler go if Fiat did't partner with it and the UAW didn't bankroll the whole thing.
If you look, read, and listen to what Rattner said in that entire enterview (transcripts of the entire talk are on the internet), his harshes and most condemning comments are by far about GM:
If you look, read, and listen to what Rattner said in that entire enterview (transcripts of the entire talk are on the internet), his harshes and most condemning comments are by far about GM:
Details on U.S. Government Support:
Consistent with the President's commitment to provide adequate working capital to help Chrysler through this restructuring period and loan up to $6 billion to the Chrysler-Fiat Alliance, the U.S. government has committed to provide assistance sufficient to help give Chrysler a chance to achieve financial viability.
Working capital: The U.S. government is prepared to provide approximately $3.3 billion in debtor in possession financing to support Chrysler through an expedited chapter 11 proceeding.
Loan to the New Chrysler: Upon closing, the U.S. government is prepared to loan approximately $4.7 billion to New Chrysler, in the form of a term loan with $2.1 billion due in 30 months and the balance 50% due on the 7th anniversary and 50% due on the 8th anniversary of the loan. The interest will be an appropriate combination of cash and payment-in-kind. There is also an additional note of $288 million which is a fee for making these loans. The loans will be secured by a first priority lien on all of Chrysler's assets.
Consistent with the President's commitment to provide adequate working capital to help Chrysler through this restructuring period and loan up to $6 billion to the Chrysler-Fiat Alliance, the U.S. government has committed to provide assistance sufficient to help give Chrysler a chance to achieve financial viability.
Working capital: The U.S. government is prepared to provide approximately $3.3 billion in debtor in possession financing to support Chrysler through an expedited chapter 11 proceeding.
Loan to the New Chrysler: Upon closing, the U.S. government is prepared to loan approximately $4.7 billion to New Chrysler, in the form of a term loan with $2.1 billion due in 30 months and the balance 50% due on the 7th anniversary and 50% due on the 8th anniversary of the loan. The interest will be an appropriate combination of cash and payment-in-kind. There is also an additional note of $288 million which is a fee for making these loans. The loans will be secured by a first priority lien on all of Chrysler's assets.
The decision not to let Chrysler go into liquidation was a policy decision and not a business decision. The policy decision was based upon the state of the economy in the midwest and the catastrophic freefall in the US economy.
Rattner speaks at length on GM, because since September 2008, everything that has transpired was always about GM and what to do with it. Even the hearings on the Hill were about GM and symbolically about Ford and Chrysler.
GM blew through billions in the 4Q08 and 1Q09 because they stopped production and incoming cash flow stopped. GM had to pay off its suppliers for vehicles already built. If not for the government money Bush agreed to in Dec 2008, the supply base would have collapse which would have taken down Ford, Nissan, Honda, Toyota etc production in the US. Recap of the chain of events.
Obama asked Steven Rattner, the head of the auto task force, who had been one of the four to vote yes in Summers’s office, “What do you think the percentage likelihood is that, if we give this deal a chance, it will succeed?” Rattner didn’t make the decision any easier. “Fifty-one per cent,” he said. “But, Mr. President, in my experience, deals get worse, not better, over time.”
At a morning meeting in the Oval Office on March 26th, Summers pressed Obama to make a decision. Romer told Obama of Goolsbee’s dissenting opinion, and he was brought into the meeting, which delayed the decision. “Half an hour to decide the fate of the auto industry?” Obama said, according to an account by Bloomberg News. “We need more time than this.” The group, plus several other advisers, reconvened at six o’clock in the evening. At one point, Robert Gibbs, the President’s press secretary and confidant, showed the group a map of Midwestern counties and their current levels of unemployment. He said, “We talk a lot about avoiding twenty-five-per-cent unemployment, like we had in the Great Depression, but in a lot of these places we’re already there.” When the debate was exhausted, Summers, perhaps recognizing that he had misbehaved at the morning meeting, faithfully summarized the views of everyone at the meeting, including Goolsbee. Obama asked Steven Rattner, the head of the auto task force, who had been one of the four to vote yes in Summers’s office, “What do you think the percentage likelihood is that, if we give this deal a chance, it will succeed?” Rattner didn’t make the decision any easier. “Fifty-one per cent,” he said. “But, Mr. President, in my experience, deals get worse, not better, over time.”
In the end, Obama sided with Summers over Goolsbee, but Goolsbee believes that his case against Chrysler did push Obama to impose the condition that, if the Fiat deal fell through, the government would offer no help. Over all, the episode suggests that there was enough internal dissension to make sure that the President’s options weren’t constrained. Goolsbee told me, “History has not been kind to Administrations where everybody agreed with each other and all they ever had to say was, Good idea, boss.”
In the end, Obama sided with Summers over Goolsbee, but Goolsbee believes that his case against Chrysler did push Obama to impose the condition that, if the Fiat deal fell through, the government would offer no help. Over all, the episode suggests that there was enough internal dissension to make sure that the President’s options weren’t constrained. Goolsbee told me, “History has not been kind to Administrations where everybody agreed with each other and all they ever had to say was, Good idea, boss.”
Michigan reported the nation's highest unemployment rate at 15.3 percent. It was followed by Nevada at 13.3 percent, Rhode Island at 13 percent, California at 12.2 percent and South Carolina at 11.6 percent.
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I am surpised they did not merge GM and Chrysler. It would have provided a middle ground. less job losses than closing Chrysler..but less risk than investing in two seperate, competing companies. Job losses would have been somewhere in the middle of those two also.
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Mmmm, How can I comment on this without bringing politics into the discussion... you can't.
Wagner had to go due to political considerations, just as UAW leadership had to stay due to political considerations.
We don't discuss politics here, therefore, no accurate discussion is going to happen.
Rick is gone. The old Board wasn't happy about it. The old Board is gone.
Either way it's going to come down to product and customers.
Both are essential.
If my opinion made any difference I'd bother sharing it. That boat left the dock.
Wagner had to go due to political considerations, just as UAW leadership had to stay due to political considerations.
We don't discuss politics here, therefore, no accurate discussion is going to happen.
Rick is gone. The old Board wasn't happy about it. The old Board is gone.
Either way it's going to come down to product and customers.
Both are essential.
If my opinion made any difference I'd bother sharing it. That boat left the dock.
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Posts: 1,496
From: Roseville, MI, USA
Fritz also told Ratter, "You can fire me anytime you want, but at least give me a better chance to succeed."
Classic.
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What's funny is GM had a reputation for being financially strong management wise for a long time. They might have had disaterous numbers..but the reputation was that their finance department was well run.
I can only assume when he meant that they were run bad financially he was referring to how much stuff they did that lost money like Saturn, Pontiac, and programs that lost money from the onset like Kappa. Or programs like Volt that cost a lot but really will not provide positive to the bottom line for a while. GM had long taken the approach that selling a lot of stuff at break even was better then selling some stuff at higher margin, but having excess capacity that kills the bottom line. To a finance person, doing anything that loses money is completely unacceptable, no matter the logic.
As mentioned above..what broke GM's was when GMAC stopped leasing, then financing. That killed sales volume no matter the incentives, and made them shut down production. The media gave people the conception GM was either almost bankrupt..or could not get a car financed even if you wanted one..so people stayed out of showrooms. GM's business plan centered around not shutting down plants at any cost...so having to shut down production but still pay employees was just a sea of red ink. GM had $25 billion on hand and burned it fast.
GM had $25 billion in cash..before the storm, which while not a lot was also not "too little". I think even the strongest companies like Walmart would have a cashflow issue if their sales were suddenly cut in half, and stayed that way for several months.
All that being said..while less than ideal...I can also say I could not have pictured a government bail out putting GM in a better place than it has. A lot of people assumed it would be worse, but they were not banking on bankruptcy law being thrown out the window.
I can only assume when he meant that they were run bad financially he was referring to how much stuff they did that lost money like Saturn, Pontiac, and programs that lost money from the onset like Kappa. Or programs like Volt that cost a lot but really will not provide positive to the bottom line for a while. GM had long taken the approach that selling a lot of stuff at break even was better then selling some stuff at higher margin, but having excess capacity that kills the bottom line. To a finance person, doing anything that loses money is completely unacceptable, no matter the logic.
As mentioned above..what broke GM's was when GMAC stopped leasing, then financing. That killed sales volume no matter the incentives, and made them shut down production. The media gave people the conception GM was either almost bankrupt..or could not get a car financed even if you wanted one..so people stayed out of showrooms. GM's business plan centered around not shutting down plants at any cost...so having to shut down production but still pay employees was just a sea of red ink. GM had $25 billion on hand and burned it fast.
GM had $25 billion in cash..before the storm, which while not a lot was also not "too little". I think even the strongest companies like Walmart would have a cashflow issue if their sales were suddenly cut in half, and stayed that way for several months.
All that being said..while less than ideal...I can also say I could not have pictured a government bail out putting GM in a better place than it has. A lot of people assumed it would be worse, but they were not banking on bankruptcy law being thrown out the window.
Mmmm, How can I comment on this without bringing politics into the discussion... you can't.
Wagner had to go due to political considerations, just as UAW leadership had to stay due to political considerations.
We don't discuss politics here, therefore, no accurate discussion is going to happen.
Rick is gone. The old Board wasn't happy about it. The old Board is gone.
Either way it's going to come down to product and customers.
Both are essential.
If my opinion made any difference I'd bother sharing it. That boat left the dock.
Wagner had to go due to political considerations, just as UAW leadership had to stay due to political considerations.
We don't discuss politics here, therefore, no accurate discussion is going to happen.
Rick is gone. The old Board wasn't happy about it. The old Board is gone.
Either way it's going to come down to product and customers.
Both are essential.
If my opinion made any difference I'd bother sharing it. That boat left the dock.
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