Steven Rattner: GM Had "Stunningly Poor Management"

Steven Rattner, the ex "car czar" who helped organize the bailout of the Detroit automakers earlier this year, has begun to speak out about his experiences. And he's not holding his tongue.

A former New York Times writer, Rattner made his fortune running the Quandrangle Partners investment firm. Rattner stepped down from his post as car czar earlier this year amidst concerns over Quandrangle's use of middlemen to convince the New York state's pension fund to invest in their funds.

The first revelation is a lengthy piece in Fortune, in which Rattner discusses his time in Detroit.

Here's how Rattner begins:

Everyone knew Detroit's reputation for insular, slow-moving cultures. 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.

Rattner also mentions that he and his colleagues were "appalled by the absence of sound analysis" in requests for expenditures.

Much of the blame, Rattner said, could be laid at the feet of former CEO Rick Wagoner, who established a tone of "friendly arrogance" among his employees. Here's more:

[Wagoner] 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.

According to the Detroit News, Rattner may even be pondering writing a book about his experiences.

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Here's How the AP put it:

GM's board of directors was "utterly docile in the face of mounting evidence of a looming disaster" and former GM chairman and chief executive Rick Wagoner set a tone of "friendly arrogance" that permeated the company, Rattner wrote.

"Certainly Rick 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," Rattner wrote.

Rattner described his six-month stint leading the auto task force, which pushed GM and Chrysler into quick bankruptcies last summer with the help of billions of dollars in federal aid. The task force won concessions from the union, suppliers, bondholders and dealers, and the U.S. government now owns nearly 61 percent of GM and 8 percent of Chrysler.

"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," Rattner wrote.

"But on the other hand, as we surveyed the interconnected web of finance companies, suppliers and related businesses, the potential impact of the likely alternative -- liquidation -- stunned us. We imagined that the collapse of the automakers could devastate the Midwest beyond imagination."

GM said in a statement it was "a new company with a strong balance sheet, less debt and a fresh product lineup that is making consumers take notice. ... Looking back doesn't help us with the important work we have in front of us. We are grateful for the second chance our nation's support has given us, and we are confident we will succeed."

Rattner said the task force was divided on whether to save Chrysler. Chrysler was poorly run during its alignment with Daimler AG, and "larded up with debt, hollowed out by years of mismanagement, Chrysler under (private equity firm) Cerberus never had a chance."

The task force determined that Chrysler could not survive without a corporate partner and turned to Italy's Fiat Group SpA. Fiat took control of Chrysler after it emerged from bankruptcy protection in June and received a 20 percent stake in the company, with the opportunity to take on 35 percent.

As for GM, Rattner said Wagoner told him in mid-March that he wanted to remain at the company but was willing to step down to help GM. Rattner said Fritz Henderson, who succeeded Wagoner as chief executive, "conveyed more energy and openness to change."

Rattner asked Wagoner to step aside on March 27 and Wagoner agreed, supporting their plan to make Henderson the new CEO. In an "awkward conversation," Rattner said Wagoner asked whether the administration planned to fire UAW President Ron Gettelfinger.

"I'm not in charge of firing Ron Gettelfinger," Rattner replied.

Rattner has faced his own scrutiny. His former investment firm, Quadrangle Group, paid more than $1 million to a New York political consultant indicted in a public corruption probe in New York.

Rattner wrote that he grappled with "the New York attorney general's investigation of my former firm, Quadrangle Group, and me about our actions in connection with an investment from the state pension fund." He did not elaborate.

Read an exceprt of the Fortune piece here.

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Comments

[masher]

The executive that Obama forced out, well asked nicely to leave with $10 million in his pocket, was Wagnor. The rest of the failed executives where given $55 billion of taxpayer money. Now they can pay themselves huge salaries and bonuses on our dime. Change we can believe in I guess.

And Obama made sure, he made very sure, that there were no provisions to stop GM from using our money to ship even more jobs to China, Canada, Mexico, Australia, and on and on. Its just sick.

And now that we have bailed out GM, we have to keep bailing out GMAC because GM needs GMAC. Nevermind that GMAC used to be one of the most profitable businesses in the nation. Nevermind that Obama has looked the other way at the current management which was responsible for turning GMAC from a profitable auto lender to a nearly bankrupt car and home lender.

Obama is just stunning. He looks the other way when these super rich people who had everything handed to them failed. But when average people just want the federal government to stop regulating their job market he won't. Obama is still using the full force of federal regulations like H-1B to drive down average folks wages. Its sick!

[senorlou]

Wagoner and those like him drove GM into the ground. He was a foolish man who took GM in the wrong direction and wouldn't change. He blames workers for building the wrong cars. GM has 0 cars that get over 30 mpg combined to this day (no, the Aveo only gets 25mpg, I drove one). I can only think of a few lousy cars that are priced under $20K.
The fastest growing car company in the USA today is Hyundai/ Kia. They only have a couple of cars and SUVs that are over $20K. The majority of their vehicles are under $20K, a few are under $15K, closer to $10K.
Will the American car companies finally get it? Americans are not rich anymore on credit. They need small, affordable cars that get good mileage. I can only hope they are designing cars that fit these times, not trucks that take us back 12 years.

[Topsailsman]

American business culture can be summed up in one word: sycophants.

If you dare challenge authority, you are out. You're not a "team player".

Top management demands rigid orthodoxy and lockstep compliance.

Which brings you the debacle we are now suffering. The emperor has no clothes, and he will execute you if you dare say it.

[abbyrose86]

Well said and unfortunately too true!

[schatsie]

Anyone who has opened the book The Reckoning by David Halberstam back in the 1980s knows this....and with their finance arms doing the same thing with derivatives as LTCM and the banks, where is the surprise?

The only suprise is that the Board of Directors did nothing except rubber stamp compensation and benefits for the Management and SCREW THE UNIONS.....

[perk]

Mr. Rattner. Given your recent poor opinion of GM's management why would you back investing billions of taxpayer dollars in the company while you were the "car czar"?

[Viper]

If you read it, it was because it would have devasted the entire economy of the midwest.. put millions more out of work (each direct mfg creates 5 other jobs) and all the parts suppliers...

And the loss of Chrysler and GM would wipe out half of whats left of American industry...

And we need to restart indutry to reverse trade deficits or ever have a chance at low unemployment again and rising wages.


Regards

[Topsailsman]

Aw, don't you know everything would have been better if we'd just let the whole thing collapse in one disorganized heap. Just ask any libertarian.

[mykebee]

GM off'd Opel. One of Europe's most energetic, effective and profitable engineering concerns. Why? Because bailout dollars could not be disbursed to support non-US companies.

This is how dumb we are as a country.

[Viper]

GM actually made money in every country that had single payer healthcare.. losing money only here.

And should not Germany support Opel... which is what is happening?

Regards

[schatsie]

GM made money in countries with SINGLE PAYER....Imagine that.....and that included containing the Drug Cartel....

[rudolph]

So, free markets work? Is it worth the pain?

[Artemis34]

Regulated markets work.

Free markets (anarchy) do not.

Reverse deregulation.

Put teeth back in anti-trust laws.

[Artemis34]

These management people stay in an insular environment where their bad behavior is lauded.

To the rest of us it seems crazy.

Look at Meg Whitman, can't get why it is so bad that she didn't even vote until she was 46 years old, and after not even bothering to do her duty as a citizen, she now wants to lead the citizens of CA as governor.

She's lived in the same world as GM management where all the F'd-up stuff the do is praised, supported, normalized, encouraged...

The culture is totally rotten.

[sabredance]

Many business studies suggest that gender diversity in the work place improves company performance (http://www.sfgov.org/site/dosw_page.asp?id=103205). Indeed, logically, one would suspect that diversity of opinion and interaction is the key variable here. Group think traps companies in narrow viewpoints and deprives them of effective risk management, healthy skepticism, and outside the box thinking. Although team building doesn't have to result in conformity, it usually does; corporate monoculture tends to drive out the innovators and skeptics.

The story of groups driving off valuable members is as old as Cassandra, and the consequences just as unpleasant and predictable.

[Artemis34]

Agreed. Catalyst studies also show gender diversity, as a rule, leads to higher profits and better financial performance.

That said, it is on average. There can always the be excpetion, like Meg Whitman, who has been drinking the Kool-Aid too.

We can change this with regulation.

For example, Germany requires by law that LABOR supply a member to the board of directors. Not surprisingly, this is often their first / only minority member as well.

[Photon55]

The private sector is dysfunctional, so is the government as well as the divisive society. With nothing working anymore in this country the future looks bleak for young and old alike.

[Artemis34]

Don't count us out yet.

Huge corporations like GM are like enormous ships. You can't turn them on a dime, it will take time.

They've gotten way off course, getting back on course will take time.

But, it can be done.

Probably something drastic will have to be done to create real change. Like breaking up the company into to product line companies.

[Scarborian]

How is a taxpayer subsidized reincarnation of GM a better solution than just getting successful international car companies to invest in new US car plants? They are the ones whose cars we're buying, have them build more of their cars here.

[sabredance]

"Huge corporations like GM are like enormous ships. You can't turn them on a dime..."

Indeed. Too big => Cannot change => Will fail.

So GM went bankrupt, a surprise to absolutely no one who was paying attention.

[IllinoisTexan43]

Planned obsolescence. Any company adopting that operating system deserves to go the way of the dinosaur.

[bwenston42]

My name is Benny B to some. I was represented by the United Auto Workers (UAW) and worked for General Motor’s (GM) division AC Spark Plug (AC) for 33 years. I’m now retired with a moderate to good pension, for which I’m thankful.
Although I know nothing about the business of running a large Corporation, in my mind GM was the best-run company in the world at that time.
In the city I once live, Flint, Michigan, GM must have supplied 150,000 plus jobs. The men and women working those jobs were thankful, to the UAW and GM, for the opportunity to make a good living for their families. Well, I know, I was. At the risk of sounding gushy, to this day I’m thankful for being represented by the UAW and for my job at GM. I will never forget those days. I miss them. Then come the 90s and wall street greed.

[senorlou]

I'm sorry that happened. I owned 4 GM cars and switched over to a Japanese compact a few years ago. Wagoner and those like him wrecked your company and blamed the workers. I'm glad we saved GM, but I really hope they understand that things have changed and we need cars that fit our times and not expensive gas guzzlers.

[Artemis34]

Who will buy the cars if we're not working? If jobs are shipped overseas?

We need fair trade and not "free*" trade.

See Warren Buffet explain the pickle we're in his cartoon
"Thriftville vs Squanderville"
http://www.youtube.com/watch?v=5DvuyvuHmJI

We're squandering our future.

* Funny that the people who worship Milton Friedman can think we have "free" trade when we can't even have a "free" lunch!

[schatsie]

And tell me why it is that Warren Baby owes almost a billion dollars in back taxes and there are no interest charges or fines....that he collects sales taxes from widows and orphans forcing up the overall sales tax rates to make up the shortfall.... Read FREE LUNCH, the rich are devouring our childrens's future and DO NOT CARE.....

[Artemis34]

Actually, not that they don't care. They only care about themselves period, the company, the community and even the country be d@mned. They'll take their bags of money to a tax haven in the Caribbean.

[strangelet]

Sorry. That doesn't make any sense. Would you like to try again?

[djreedps]

I go to a few auto shows each year. As GM was failing, I would ask the perky female show models why GM was failing. Their canned response would always be that GM pay so much money in pensions and health care to union employee that Japanese auto makers do not have to pay. They would never talk about how GM and other American auto makers built cars which with cheap parts which broke down and which people did not want to buy.

So now that Congress is debating health care reform, one would think that companies like GM, Chrysler, and Ford would be the most vociferous about supporting health care reform with a viable public option to drive down the skyrocketing costs the private health insurance companies have been demanding.

I haven't heard a single word out of the big three auto makers supporting health care reform.

[Scarborian]

The cost of employee healthcare was just another deception. If you think about what they were claiming, they were blaming their employees for making Pontiacs and Chevrolets cost a couple of thousand dollars more than their BMW and Toyota counterparts. At the same time, they were offering thousands of dollars in cash-back deals, proving that cost wasn't the issue.

Employee benefits cost major corporations much less than their own poor managers do.

[NANANACHMAN]

All the auto manufacturers are self insured

[Viper]

The cost of healthcare is more than the cost of materials in a car made in the U.S.. and thats per Toyota.

Toyota's labor cost as their very young workers have aged are now in line with GM in the states, which of course has/had a much older labor force.. since they had been doing business here far longer. . And as we know a person over 50 helathcare is 5 times more than some one 20.

57% of Fortune 500 execs want single payer in the U.S. and site helathcare cost as one of the biggest reason for not MFG here. Canada MFG is booming as Detroit becomes a ghost town.

Germany is fully unionized, 4 week min vacations, single payer healthcare, pop of just 82 million and yest the number one exporter.. and none of its export is low valye added 3rd world export as we have such as Agriculture , scrap and raw materials.


Regards

[Viper]

GM has said it has moved much of its MFG to Canada and even Mexico where they have single payer healthcare for that reason... MFG is booming in Canada.. more cars made in Ontario than in Michigan. Detroit has lost half of its population... We lost 7.5 Million MFG jobs under BUSH.

57% of Fortune 500 Execs favor single payer.

regards

[FoonTheElder]

What is the difference between the management at the automakers, steelmakers and other manufacturers that went broke and the successful American corporations. Most of it was the willingness of the U.S. government to protect some industries and not protect others.

If you look at it, most successful American industries, such as agriculture, military production and finance, were largely protected from foreign competition by the government.

The large American companies were allowed to purchase their competitors or and create monopolies or oligopolies that controlled their industries, such as oil, utilities, software & technology.

The government allowed big corporations to dictate terms to suppliers to force them to reduce wages, employees and outsource to other countries, as Walmart does.
http://www.harpers.org/archive/2006/07/0081115
http://www.oligopolywatch.com/stories/2003/04/17/definingTheNewOligopoly.html

[Artemis34]

Not entirely.

Look at Bethlehem Steel vs. Nucor. Both steal companies. Both faced international competition without government protection.

Nucor triumped and Bethlehem did not. The difference was management.

That said, we should NOT have insanely "free" trade either. I would contend that those who put deadly poisons in pet food, baby formula and other products are not the most apt to produce these products.

See Warren Buffet explain the downfall of free trade
Thriftville vs Squanderville
http://www.youtube.com/watch?v=5DvuyvuHmJI

We're eating our savings and selling our souls to our creditors like communist China

[rich misty]

There are no savings, we are the worlds largest debtor nation.

[ThinkCreeps]

I agree with you that some failures are protected and some not.

Agriculture, military contractors and finance? Success stories? The first wholly funded by government subsidy, the second typically overrunning on costs by 40%, despite being wholly funded by government, and the third driving off a cliff, to be rescued government subsidy. Hardly titans of the free market.

In contrast, oil, utilities and software technology companies are capable of delivering useful and competitive products without intervention or rescue.

[FoonTheElder]

The government financed companies are financially successful due to all of the corporate welfare they receive. They certainly aren't efficiently run, which is a reflection of their management.

[jinxed]

Lets wait and see how oil does once their subsidies are yanked.

[MikeRdg]

'Rick Wagoner and Bob Rossiter donated to Mitt Romney. Mike Jackson bankrolled Rudy Giuliani.'

And Wagoner wasted money on Mitt Romney too!

Must be because Romneys brother represented GMAC.

[Rule Of Law]

Just a thought--

When the meat packing industry in the mid-west wanted to break the unions so they could hire illegal workers for less than minimum wage, they closed down their factories in states like Oklahoma and Missouri and moved the whole thing to new states like Colorado and Montana where they didn't have laws re unions and were given taxpayer assistance with taxes, set up expenses etc...

Could it be that the guys at the top of GM and the rest, have been in on the plan to gut their companies to achieve the same sorts of goals? Could their "benign neglect" and unwillingness to be competitive have been a cover for this? Because, let's face it, top management at the big three are still living in nice houses, with good retirement packages in place, and will never be faced with the terror and uncertainty about where their next meal--or job-- will come from that their workers will.

They had the power to make positive changes--and didn't. There is more here than meets the eye.

[LeeVing]

I really don't think so. They really are just that simple minded. I believe they thought they could ride that gravy train all the way into the sunset without having to make any sort of effort.

[Artemis34]

Conservative corporatists do these things b/c it works for them. They have options -> they drive up the shares short term-> their bank account fills up. They are sociopaths without empathy or loyalty.

They fill their sacks of money then they are off to a tax haven in the Caribbean.

The elites support this plunder b/c they want to be able to do it when it is their turn.

[AnotherMcIntosh]

You may be onto something.

[Rule Of Law]

The purpose of every recession or depression we've had is to take from the people what's theirs, and give it to the elites. The Great Depression, for instance, was the greatest redistribution of land in America's history. It was the death of the family farm and the birth of AgriBusiness and the factory farm. Also, not an accident.

Our history is littered with manipulations of working class people, small property owners (as now) and all of it is planned.

[therealredstateblues]

GM has closed up several powertrain facilities while "coincidently" opening up new ones in india

[FoonTheElder]

It is no coincidence that the companies with the highest union membership over the past 30 years are the ones most likely to be in bankruptcy. That doesn't apply to any highly unionized areas related to the government, like military, aviation and general government unions, even though No Child Left Behind was designed to lessen the impact of teacher unions.

The corporatists would like you to believe that these bankruptcies were due to high labor costs. Mostly it was planned to allow low-cost foreign competition to destroy most union companies and not allow it when preferred non-union companies were involved.

In the case of meat packing, the meat packers left the larger unionized cities and went to small rural towns where they got rid of the unions, drastically cut employee wages and replaced skilled meat cutters with low wage illegal labor. The meat packers were able to do this because labor laws are no longer enforced and even when they are the fines are less than the cost of complying. The government just kept collecting campaign contributions and taxes from the corporations and ignored the replacement of well paid Americans with low wage illegal aliens.

Why is there trade protection for agriculture, military equipment, aviation, etc. when there isn't any protection for other industries. They are industries favored by the corporatists in government.

[Rule Of Law]

A well stated history, Foon. And this chapter is about one of our last remaining blue collar manufacturing industries and the further impoverishment of the People.