Overhaul (14 page)

Chrysler by now was hemorrhaging cash, and Nardelli pressed on in his quest for potential partners. The merger talks with GM stretched from July to October, when GM effectively broke them off and asked the Treasury for help. Nardelli also sounded out Alan Mulally at Ford, a longtime friend, who told him, "I love you to death, Bob, but I've got my own plan."

Finally Nardelli turned to Fiat. He had already done some business with Sergio Marchionne in early 2008. Chrysler had lacked a small car in its product line, which it needed to meet increasingly stringent U.S. fuel economy standards and to broaden its appeal to customers. Among Marchionne's great successes at Fiat had been the Fiat 500 (or Cinquecento, as it is known in Italian), a stylish, zippy little car similar to the BMW Mini but a lot cheaper. Nardelli, who had injured his back and flew to Turin wearing a brace, spent two days with the Fiat chief. They came to a handshake to produce the Cinquecento at a Chrysler plant in Mexico.

The flamboyant Marchionne was viewed by the inbred auto industry as an arriviste. Raised in Canada, he had started as an accountant and made a career in European industrial companies before finding his way to Fiat. The big automaker was virtually moribund when he arrived. Within a few short years, Marchionne blew up its bureaucracy, empowered a new generation of engineers, and turned Fiat into a growing and profitable automaker. Unlike the buttoned-down Ghosn, he was voluble, idiosyncratic—his trademark was a black sweater, worn sometimes over a dress shirt and sometimes not—and hungry for media attention. But he matched Ghosn's drive. He would cross continents more casually than most businessmen would approach a trip from New York to D.C. He showed every indication of viewing himself as heir apparent to Ghosn as the world's greatest auto executive.

When Nardelli called in early January, Sergio jumped at the opportunity, dispatching squads of executives to Chrysler's mammoth headquarters in Auburn Hills, Michigan. They worked around the clock to negotiate an alliance, using the template that Nardelli and Ghosn had developed. By January 12, the companies had agreed on a sufficiently detailed term sheet that Chrysler's CFO, Ron Kolka, called the Treasury to disclose that an important alliance was in the offing. The tentative deal, announced eight days later, was greeted with as much enthusiasm as could be summoned given Chrysler's precarious state. One industry expert called it "interesting" and said, "It helps the long-term viability."

But the glimmer of hope soon faded. Just before Chrysler's February 17 government deadline, Marchionne told Nardelli that Chrysler could not include their joint plan in its viability report, permitting only a vague description of the alliance. JPMorgan knocked another big hole in Chrysler's report by refusing at the last minute to let Nardelli factor in any reduction in the company's massive bank debt. That ought to have been a routine assumption for a business so close to the abyss.

Our task force, Team Auto, was aware of none of this, of course, but we'd soon get to know Sergio and JPMorgan well. They'd be among our biggest headaches in the race to save the company.

B
OB NARDELLI MUST HAVE
been in quiet despair as my colleagues and I gathered around the wooden conference table in our yellow-walled combination conference room and office to hear him and his executives present their plan. We were unaware of Fiat's eleventh-hour U-turn or the intransigence of Chrysler's banks, so we had no idea why the viability report was so weak—to us it seemed as if Chrysler had simply run out of cards.

This was an introductory due-diligence meeting—a financial industry procedure similar to a deposition in a lawsuit, in which the parties to a prospective deal undertake a detailed and painstaking review of the facts, numbers, and assumptions. It's a chore, not a drama, and about as exciting as an average day of
C-SPAN.
This session would be somewhat ceremonial, and would serve as a broad introduction for senior members of the task force, like Ron Bloom and me. In the ensuing days, Brian Osias and others would dig far more deeply, in essence tearing the numbers apart and putting them together again.

There was tension in the air as we milled around making small talk before getting down to business. The body language of Nardelli and his colleagues told me that they knew they were fighting for their company's existence and were determined to infuse every bit of salesmanship they possessed into their presentation.

At sixty, Nardelli was of medium height, with thinning brown hair and his college ring on his finger. He seemed like an ordinary corporate executive in demeanor and dress—down-to-earth and likable, ready to roll up his sleeves. His earnestness occasionally led him into odd territory, such as his habit of prefacing many of his sentences with our first names, beginning each one "Steve and Ron..." or "Ron and Steve...," as if anxious that our attention not stray. For four hours, he and his executives gave it their best, but beneath the surface we could sense the thinness and even hear the lack of conviction in their voices. After two years of fighting to save their company, they were tired. And they must have known that they were not giving us a business plan that we could back with more government dollars.

The next day's due-diligence session, with General Motors, was disturbing in a different way. Beforehand, Haley had spent half a day finding an available space that could show PowerPoint slides. (The U.S. Treasury is ill equipped to entertain visitors from the outside world, I learned. The few conference rooms are scattered throughout the two-block-long Treasury fortress and are under the control of many different departments.) Finally she'd lined up a room in something called the Treasury Annex, a shabby building across Pennsylvania Avenue. I had walked by this building many times but had no idea it was part of Treasury. The windowless sixth-floor room in which we met was no more inviting than the exterior—cramped, drab, and gray. Inexplicably, it bore the title "Center for Excellence."

The GM folks pretended not to notice any of this. Nor, in the months that followed, did they ever give a sign of how hard it must have been to have a bunch of Wall Street recruits and government bureaucrats sit in judgment of their iconic company. Though they'd started their bailout request at the cabinet level, now that billions of dollars of
TARP
money had been provided and a task force assigned, they didn't throw their weight around or demand to see Tim Geithner. They seemed to regard us as a necessary hardship, to be endured as a way of securing more cash.

Before leaving our office, I asked Haley what we were going to give them for lunch. "Nothing," she replied, explaining that Treasury had no budget for refreshments at meetings, "not even for bottles of water." It seemed rather harsh to expect our visitors (not to mention ourselves) to go six hours without food or drink, so I gave Haley $100 from my wallet and told her to go to a sandwich shop. That became our regular routine when we had lunchtime visitors.

***

This would be my first meeting with Rick Wagoner, about whom I had so many questions and had heard and read so much. By most accounts, he had been a golden boy at GM. After graduating from Duke University and Harvard Business School, he'd begun as an analyst in 1977 in the GM treasury, where many of the company's leaders got their start. He'd risen through the ranks, including stops as treasurer and then president of GM's important Brazilian operation. In 1992, as GM went through its first near-death experience, losing almost $30 billion in three years, a boardroom coup replaced CEO Robert Stempel with Jack Smith. It was Smith who summoned Rick from Brazil and named him CFO at just thirty-nine years of age. In 2000, at forty-seven, Rick succeeded Smith and became the youngest CEO in GM's history.

Wagoner at first seemed the change agent General Motors needed. He won kudos by bringing in a former Ford executive as CFO and also recruiting automotive marketing and design legend Bob Lutz, a larger-than-life car guy who masterminded hits such as the resurrected Pontiac GTO and the Cadillac CTS, and pushed for the development of the Chevrolet Volt. Wagoner tackled tough housecleaning challenges, like pulling the plug on the moribund Oldsmobile brand. After 9/11 he championed the Keep America Rolling campaign, in which GM lured consumers with zero-percent loans—a smart blend of commerce and patriotism that brought the company much praise.

Yet, after a few years, the job seemed to wear Wagoner down. Killing Oldsmobile proved a harrowing ordeal that cost GM well more than a billion dollars, alienated many of its dealers, and discouraged further efforts at brand elimination. A 2003 effort to hold the line on GM's dwindling North American market share at 29 percent (GM executives sported "29" lapel pins) fizzled quickly. A Wagoner-backed deal to acquire 20 percent of Fiat, mostly for engine technology, became such a burden that in 2005 GM paid Fiat $2 billion to cancel it. (At our first meeting, Sergio would brag that he had taken GM to the cleaners.) That same year Wagoner tried jawboning the UAW into accepting cuts in health benefits, only to back down when the workers threatened to strike.

Born and bred as an insider, Wagoner never displayed any fortitude for remaking GM's hidebound corporate culture. He operated as an incrementalist, and a slow-moving one at that. His guiding star appeared to be an unshakable faith that GM was not like any other company; it was
General Motors.
Whatever happened to other companies couldn't possibly happen to GM.

Consequently, he fought efforts by GM investor Kirk Kerkorian to pare down or sell brands like Pontiac and Hummer—moves that, like an alliance with Nissan, could have left the company much better off. When GM stock topped $40 a share during the financial bubble in 2007, he also turned down proposals by investment banks to raise billions in new capital.

Not knowing Wagoner, I imagined that his talents included the kind of determination and work ethic that could withstand the grinding punishment of being the CEO of a company like GM. I had seen this in other CEOs and understood the value of those skills. At the same time, I couldn't help but suspect that his real genius had been in keeping the board of directors on his side as losses mounted again to the tens of billions of dollars, market share continued its grim slide, and the price of GM shares fell to single digits. Regardless, now the company was in crisis, and leadership had to be judged on results.

Wagoner greeted us with a firm handshake and a steady gaze. He looked and carried himself like a CEO—he was tall and solidly built, wore a nicely tailored suit and had a full head of brown hair. He left simultaneous impressions of amiability and remoteness. Unlike Nardelli the previous day, who had led the Chrysler presentation and shown a clear willingness to engage, Wagoner gave listeners very little to grab on to. He made a few opening comments and then turned over the floor to his lieutenants, occasionally interjecting a remark here and there but mostly presiding. While I respected the collegiality this implied, it left nearly everyone with the impression that he held himself aloof. If Rick had taken a more central role it would probably not have affected our assessment of the company, but might have affected our judgment of him. (Tellingly, not once on that day did Rick utter the word "bankruptcy," almost as if he were incapable of saying it.)

Unlike our meeting with Chrysler, this six-hour session was devoid of tension. The GM team seemed placidly to take for granted that somehow, some way, the government would agree to its requests.

As a business, we were happy to discover, the company seemed to have much more going for it than Chrysler. It had been free of the ownership changes that Chrysler had experienced. It remained the largest car manufacturer in the United States. While its vehicles were far from ideal, they were on average considerably more appealing and popular than Chrysler's. The company had global operations—some troubled, like Opel in Europe, but some highly promising and successful, particularly its fast-growing joint venture in China. (To GM's delight, Chinese consumers perceived Buick as the classiest car a person can drive to advertise success.)

Yet GM's survival plan reminded me of the old joke about the economist marooned on a desert island with a can of food but no way to open it. How does the economist solve the problem? He
assumes
a can opener. From Wagoner on down, GM seemed to be living in a fantasy that, despite the evidence of decades of decline, it was still the greatest carmaker on earth, in a class by itself. Chrysler at least had recognized the gravity of its situation, it seemed to us, and had tried to find answers. GM, after cruising to the brink of collapse and begging for government help, now seemed mostly to be marking time in expectation of an economic recovery and a rebound in sales. Its February 17 submission consisted of the same proposals the company had offered the Bush administration back in December, modestly speeded up. The same cutbacks in brands, factories, subsidiaries, blue-collar workers, and salaried employees were now compressed into a period of one to four years.

There was still no real urgency. GM did not think this necessary, as its troubles, as Wagoner had told Congress, were mostly due to market conditions. The only mention of bankruptcy was to present it in all its ugliness, an option that no sane person would pursue. The overall concept seemed to be to trim only what was easily achieved and absolutely necessary, and use taxpayer dollars to ride out the recession. Incredibly, GM now assumed an even higher rebound in car sales in 2012 than it had back in December. The company seemed oblivious to the fact that its original request, in November 2008, for $10 billion to $12 billion in aid had grown steadily and was now at $22.5 billion to $30 billion. All told, the presentation, delivered with one of the largest PowerPoint decks I had ever seen, made it apparent to me that Wagoner and company had not come to grips with that stubborn tin can.

Every industry has its own drivers and idiosyncrasies; if our sessions with Chrysler and GM did little else, they helped me learn more about automaking. I was astonished, for example, to learn how the Detroit Three accounted for labor costs. Broadly speaking, the operating costs of any business can be divided into two buckets: variable and fixed. Variable costs are those that change with the level of production: if you make more vehicles, you need more parts and steel.