Crash Course

by Paul Ingrassia

  Congressional hypocrisy aside, there were deep-seated reasons why the Saturday Night Live humor cut so deeply. Millions of Americans had endured real car problems, not altogether different from those parodied in the skit, and had given up on Chevys, Fords, and Dodges. Having voted with their wallets to buy cars from Toyota or Honda, they resented the idea of subsidizing Detroit’s cars with their tax dollars. The corporate jets and the Jobs Bank sealed their hostility.

  Detroit executives, though, were jolted by the nation’s reaction. “Somehow, somewhere along the way we have crossed a line with the American public that we hadn’t realized,” said one GM executive who was trying to come to grips with it all. They hadn’t realized it because they all lived in Detroit, where the reaction to the congressional hearings was different from that in the rest of the country.

  The prevailing sentiment in Detroit was outrage at Congress for the “double standard” of bailing out the banks but beating up on the car companies. A local business magazine ran a cover story calling the Detroit bailout a “moral imperative” for the nation and hand-delivered a copy to each member of Congress. The home-team cheerleading, avidly joined by the local media, especially the radio talk shows, helped create the very insularity that had made Detroit executives and UAW officials oblivious to the sentiment elsewhere in America.

  The combination of being a national joke and having a disastrous local economy sent Detroiters into a collective civic depression. One retired GM executive took solace by writing a limerick that he e-mailed to friends. It went:

  Our cars made cash registers ring

  Our executives thought we were king

  But foreigners arrived

  And then markets dived

  So now to the Feds we do sing.

  In this time of our direst need

  The public recalls only dark deeds

  Engines don’t start

  Cars fall apart

  We rebuffed fuel economy creeds.

  Bankruptcy’s no option, we say

  We need just a few billion to stay

  Alive until when

  We can send once again

  Our fine products to once more lead the way.

  When the CEOs returned to Washington on December 4 to plead their case again, they followed the Saturday Night Live script—life imitating art, as it were—and really did drive from Detroit. Wagoner’s dawn departure from his Bloomfield Hills home, in a Chevrolet Malibu hybrid driven by a GM chauffeur, was filmed by a Fox television news team, which was chided by GM’s global security chief for driving up to the boss’s house in a Toyota.

  Wagoner, however, gamely agreed to an interview in the chill December darkness. Driving to Washington, he explained, “would be kind of a fun thing to do, to show off our new, in this case, hybrid vehicles.” It was hard to believe it was fun, but at least Wagoner was playing his part.

  So were Mulally, who traveled in a Ford Escape hybrid, and Nardelli. He rode in a Dodge Aspen hybrid SUV, a choice that showed how strained the whole green-groveling exercise had become. Just weeks earlier Chrysler had announced the Aspen hybrid would be discontinued because hardly anybody was buying it. But it was the only hybrid Chrysler had, and only a hybrid would do.

  The second round of hearings produced less theater than the first but more news—mainly, Mulally’s assertion that Ford really didn’t want or need federal assistance after all. After the disastrous first hearing, Ford executives had regrouped. They decided that tethering their boat to GM’s and Chrysler’s, while those two were plunging toward the waterfall, might drag down Ford unless the company changed course.

  Ford had done too much hard rowing, and had made the difficult decisions to jettison Jaguar and Land Rover, to risk getting swamped by the others. So Mulally steered away from GM and Chrysler. Ford, he told Congress, wouldn’t mind having a guaranteed line of credit, just in case. But thanks to the $23.6 billion “home improvement loan” in 2006, he said, Ford wasn’t facing a cash crisis and expected to make it on its own.

  So much for “Solidarity forever,” at least among CEOs. The dismay from Nardelli and Wagoner was almost audible. They had argued that their companies were helpless victims of the nation’s financial panic, not of chronic mismanagement, and thus deserved government assistance. But if Ford could make it without a bailout—er, loan—why couldn’t they? In the months to come, the disparity between Ford and the other two companies would raise that question time and again.

  Only in early December did GM hire bankruptcy counsel, while Chrysler and even Ford had done so much earlier, if only as a standby measure. Wagoner had delayed because he insisted that even the hint of a possible bankruptcy filing would bring certain death to GM. The man who had bet the company on SUVs was betting it again on getting government money—in essence, giving Congress little choice but to open its wallet or to risk the economic consequences of a GM collapse.

  And in truth, Congress was afraid to say no. Nobody knew the validity of the numbers Wagoner was throwing around about the consequences of GM filing for bankruptcy: three million U.S. jobs lost within a year, U.S. personal income reduced by $150 billion, and a government tax loss of more than $156 billion over three years. But nobody wanted to find out, either.

  The fallout from the collapse of Lehman Brothers had frightened everyone in Congress, and not without reason. The economy was reeling, banks were collapsing, and the jobless rate was soaring. The Labor Department said the U.S. economy had lost 533,000 jobs in November, the highest monthly drop in thirty-four years. Things were getting scary.

  The gathering crisis made unlikely bedfellows of the Bush White House and the Democrats in the House of Representatives, who had warred viciously for years over Iraq, the economy, and everything in between. On the weekend of December 6–7 the lame-duck Bushies and the House Democrats hammered out a compromise on Detroit: $14 billion in emergency loans to keep GM and Chrysler in business until March 31, during which time a new government “car czar” would help them craft a long-term restructuring plan.

  Senator Corker, who had made a fortune in contracting and commercial real estate, was anal about doing his homework on issues that engaged him, and this was one. After the disastrous November 18 Senate hearing, he had gone to New York to meet with every automotive analyst he could find. He returned to tell his Republican colleagues that aid to Detroit without tough strings, as the White House was advocating, would be wasting money on companies that would just keep coming back for more.

  On Wednesday, December 10, while the House was passing the emergency loan measure, Bush dispatched his chief of staff, Joshua Bolten, and Vice President Dick Cheney to sell the idea to dubious Senate Republicans. They trooped to Capitol Hill for the senators’ weekly policy lunch in the Capitol with Corker and his colleagues.

  Cheney and Bolten ran into a buzz saw. The Republican president’s deal with the House Democrats, far from shaping up as a bipartisan compromise, caused consternation among Senate Republicans, and they were further angered when Bush’s two emissaries offered only a tepid defense. “If they came with ten votes,” said Corker afterward, “they left with two.” It set the stage for fifteen hours of high drama—along with very high stakes—the next day.

  At seven-thirty A.M. on December 11 Corker’s chief of staff called Fritz Henderson, GM’s chief operating officer, on his cell phone. Corker, who was deputized to negotiate for the Republicans, got on the line and outlined a new plan with three points:

  In return for the $14 billion, GM and Chrysler would have to cut their debt by two-thirds by getting their bondholders to agree to a stock-for-debt swap.

  The UAW would have to accept stock in GM and Chrysler, in lieu of cash, for half the amount the companies owed the VEBA trusts.

  The union would have to agree to achieving wage parity with the Japanese car plants in America in 2009.

  Henderson, who was in New York, quickly accepted those terms, and at eight A.M. Corker called Gettelfinger, who said the union would
agree to talk. Later that morning Corker visited Dodd and Harry Reid, the Senate majority leader, in Reid’s office. They agreed to negotiate with the Republicans—who had enough votes to filibuster the White House bill—on the condition that Alan Reuther be included in the discussions. Reuther was a nephew of Walter and the UAW’s chief lobbyist, a man whose very name harkened back to the union’s glory days.

  About two P.M. the Democrats, Corker, and Reuther convened, along with staff members, in the ornate Senate Foreign Relations Committee hearing room in the Capitol. Before long the group was joined by Steve Feinberg from Cerberus, who happened to be in Washington. The staffers, who had expected a loud, bombastic Wall Street type, were surprised that the private equity mogul seemed chastened that Cerberus had gotten in over its head. Feinberg said his investors couldn’t put any more money into Chrysler; he seemed desperate to get out of Chrysler before the company collapsed.

  As the negotiations continued, the Republican staffers summoned the lobbyists from the car companies, who frantically dashed to the Capitol, calling every few minutes to report their coordinates (“I’m stuck in traffic at Connecticut and K”) en route. When the lobbyists arrived, however, they were told to cool their heels in the Foreign Relations Committee’s anteroom, where Feinberg was also banished. The UAW had a seat at the negotiating table, but not the car companies themselves, even though their very futures were at stake. It symbolized how far the mighty had fallen.

  Fritz Henderson, meanwhile, was at LaGuardia Airport, waiting to board a six P.M. Northwest Airlines flight back to Detroit, his new mode of travel in the post-corporate-jet era. Ken Cole, GM’s chief lobbyist, asked him to stay on the ground and to stay on the phone as well, in case he was needed for quick consultations. So Henderson kept the phone line open and waited … and waited … and waited.

  After three hours his phone ran out of juice, and Henderson himself was running out of gas. He booked a room at the LaGuardia Marriott and hopped on the hotel shuttle—just like your average corporate road warrior—arriving about nine P.M. and ordering a room service dinner. He turned on C-Span, to keep abreast of developments on Capitol Hill.

  The negotiators had reached agreement on the debt-equity swap and the VEBA funding, but the sticking point was immediate pay parity with the Japanese transplants. There was little difference in hourly wages between the Japanese and Detroit factories, but the UAW’s rich pension-and-benefits package for active workers and retirees created a big gap in total compensation: more than $70 an hour versus $50.

  Corker offered compromise language. Instead of a pay package at “parity” with the transplants, he would settle for compensation that was “competitive” as defined by the secretary of labor, soon to be an Obama-appointed Democrat and therefore likely sympathetic to the union. But Corker insisted that getting “competitive” had to happen during 2009, no later. The Democrats and Reuther argued that the UAW had already given enough and wouldn’t budge.

  Around nine P.M., as Henderson was settling into his hotel, Corker and the Republicans caucused, while their staffers hovering nearby chewed gummi bears and sucked lollipops for dinner. The Republicans debated whether they should give in or hold firm and thereby risk being portrayed—as they had been throughout the financial crisis—as the heartless “party of no.” They couldn’t duck the issue, because Majority Leader Reid was insisting on a vote.

  It came at 10:42 P.M., on the floor of the United States Senate. A few Republicans, including Senator Snowe from Maine, bolted their party. But mostly the Republicans held firm, and the White House bill died. Corker, with evident disappointment that the day’s marathon negotiations had failed, said that the Republicans and the UAW had come within “one word” of reaching agreement. Harry Reid, in turn, said some nice things about Corker from the Senate floor.

  The next day an angry Gettelfinger wasn’t as generous. The UAW had made enormous concessions to the car companies in recent years, he said, and still the Republicans wanted to “pierce the heart of organized labor.” But as the smoke cleared, the real reason the negotiations had failed became as clear as a high-beam headlight.

  As the negotiations had neared a climax, White House staffers had quietly passed the word that if Congress wouldn’t provide money to GM and Chrysler, President Bush would do it himself. Within days the president diverted $17.4 billion from the $700 billion bank-rescue package to keep the companies afloat for three months.

  Bush’s executive order required the two companies to submit new “viability plans” on February 17, outlining the measures they would take to return to profitability. George W. Bush, quite simply, wasn’t going to preside over the bankruptcy of General Motors or Chrysler—icons of both American industry and American culture—during the waning days of his presidency.

  A couple days later Gettelfinger tipped his hat to Bush. “Quite frankly, the White House has kept their word throughout this entire process,” said the UAW chief, long a vigorous critic of the president. The praise must have felt strange to both men.

  George Fisher, as GM’s lead director, expressed relief. “We need these loans, and we’re not particularly fussy about where they come from,” he told The Washington Post. And to The Wall Street Journal, he lavished praise on the performance of a man he deeply admired: Rick Wagoner. “I am so proud of Rick for the way he handled himself through those discussions,” Fisher told a reporter for the paper. “It is brutalizing to sit there in a Congressional hearing and have the world tell you that you’ve mismanaged or you’re incompetent or whatever. Rick will go down in history as one of the great CEOs of GM and maybe of the auto industry. I will bet you on that one when this is all over.”

  True to his Tammy Wynette style, Fisher was standing by his man. His support for Wagoner was nothing new, so the Journal reporter decided to save the quotes for a future feature profile of Wagoner. But he would never get the chance.

  In mid-November, not long after the election, thirty-one-year-old Brian Deese packed up his suitcases and his golden retriever and started driving from Chicago to Washington. En route he pulled off the Ohio Turnpike to sleep in his car—in the parking lot, as it happened, of the General Motors factory in Lordstown, home of the ill-fated Vega and birthplace of the blue-collar blues forty years before.

  Deese was going to Washington to save the Detroit auto industry, unlikely as it seemed, which was very unlikely indeed. Neither an automotive enthusiast nor an expert, he was instead a policy wonk who had never set foot in a car plant.

  After college at Middlebury in Vermont, Deese bounced around Washington think tanks, entered Yale Law School, and then took a leave to work on the Obama campaign. Instead of returning to Yale after the election, he accepted a job with the White House’s National Economic Council. He was assigned to the president-elect’s Automotive Task Force, which the new adminstration believed would be more effective than an individual “car czar.”

  For three months after the election Deese was virtually all there was to Obama’s auto team. “When we call Washington,” complained Steve Miller, Delphi’s CEO, a couple weeks after Obama’s inauguration, “nobody’s home.” Which was true, but even when somebody was home, Detroit didn’t know how to ring the doorbell.

  A comic example occurred in mid-January, when word leaked that Chrysler was negotiating an alliance with Italy’s Fiat—which had staged a dramatic comeback after its divorce from GM four years earlier. Nardelli feared Chrysler would appear to be jumping the gun. So he shot off a frantic e-mail to Sergio Marchionne, Fiat’s CEO, blaming the leak on an investment banker named “Phil Graham.” Marchionne’s people had to explain, politely, that “Phil Graham” was actually Phil Gramm, a former U.S. senator and political heavyweight, who was on Fiat’s investment-banking team from UBS. Gramm had reached out to his former colleagues in the Senate to muster support for Fiat’s negotiations with Chrysler. Nardelli, though innocently, was continuing Detroit’s tradition of being clueless in dealing with Washington.

  When
others finally joined Deese on the task force in mid-February, many were a lot like him: wonkish whiz kids and junior executives on Wall Street who used diligence as a verb, as in “We’ve got to diligence that plan.” (Translation: fully analyze a business plan and its underlying assumptions.) They didn’t know a pound of potatoes from pound-feet of torque—if indeed they owned a car. Those who did often had a Honda or Toyota.

  Their leaders, though older and more experienced, were cut from the same cloth: ex-Wall Streeters and private equity types just like, well, the guys at Cerberus who had fallen flat on their face with Chrysler. First among them was fifty-seven-year-old Steve Rattner, a former New York Times reporter who had left journalism to make a fortune in investment banking before cofounding a private equity firm. A trustee of Brown University (along with, of all people, George Fisher), Rattner was a smart, über-Rolodex schmoozer and big donor to Democratic candidates. He had backed Hillary Clinton in the primaries but then fell in line behind Obama and was eager to land a post in the new administration.

  His alter ego was Ron Bloom, age fifty-three, a soft-spoken but hard-nosed idealist cut from the same cloth as Mike Bennett, the former UAW leader at Saturn. But Bloom, unlike Bennett, had a Harvard MBA and in 1996 had walked away from a lucrative Wall Street career to work for the United Steelworkers union. As the American steel industry collapsed in the late 1990s, Bloom helped the Steel-workers cope, partly by using his financial expertise to help restructure the companies and partly by insisting on sacrifices from the union itself.