Overhaul (36 page)

The plan was far from ready for public consumption when, on Friday, April 24, Harry got a late-afternoon call from an anxious Walter Borst, the treasurer of GM, and a half-dozen members of his team. "We need your signoff," Borst said. They were racing to file the bond exchange offer, and they seemed to think they had to include the restructuring plan. We'd long since taken for granted that GM would need a trip through bankruptcy court, and most of GM's leaders understood that too. Knowing that the exchange offer was doomed to fail, we had ignored this bit of Kabuki theater up to now. But the GM finance people persisted in going through the motions, attending to the minutiae of regulations requiring any major change in plans to be included in the prospectus.

Harry, as it happened, was taking a rare break. He had gotten home to New York early and was playing in the back yard with his kids. He also had discovered, after many rounds of questioning, that the company had the option to delay including the details of the restructuring plan for up to two weeks. So he was in no mood for GM silliness.

"Guys, what do we think the probability of this deal happening is?" he asked, referring to the bond exchange. No one around the speakerphone at GM would give an answer.

"Give me a number," Harry persisted. "Is it less than 50 percent? Less than 10 percent?" Still no answer. He found it incredible that the company was consuming so much time and energy on a plan and no one would hazard a guess as to whether there was any chance it would ever be used! In Harry's mind, this was the exact problem with General Motors—large numbers of people running hard toward a goal of limited or nonexistent value and thus distracting from the really important priorities of the business. "I will give you a number. I think less than 5 percent. And so because we have a massive amount of work to do for a bankruptcy filing that is highly likely in the next several weeks, and I think this has an extremely low probability of happening, I cannot spend several hours going through comments on a prospectus that won't do anything to help this company."

Larry had pushed us from the start to play down Team Auto's role and keep the emphasis on GM and Chrysler managing their own affairs. That ended up being partly true of GM, in the sense that Harry and his team tried to set parameters and assumptions for its executives in the hope that they could then produce the specifics of a restructuring plan. In reality, the talent and determination of Harry, David, and Sadiq were what really drove the process. As we drafted press statements and fact sheets, I would constantly force myself to write that "GM" had done such and such. Just once I would have liked to write "we" instead.

"T
HIS TIMELINE
is impossibly aggressive. It's never been done before," Harvey Miller, the seventy-six-year-old senior statesman of bankruptcy attorneys, told Harry Wilson.

"Well, we don't have a choice," Harry countered, thinking of the President's deadline. "We can get it all done."

At 9
A.M.
on the day after President Obama announced that we had put Chrysler into bankruptcy, more than three dozen well-dressed lawyers, bankers, and GM officials gathered in a conference room on the fifteenth floor of the General Motors building in New York. Dozens more had dialed in by speakerphone.

For the men and women present who had made bankruptcy their careers, General Motors was shaping up as the Big Show, the most massive industrial bankruptcy in history. The filing deadline was June 1, just a month away, and even veterans like Miller were intimidated. Privately, he had approached Matt and Harry a few days before with his concerns that GM's management was still in denial about the prospects of a bankruptcy filing and wasn't working hard enough to prepare.

Harry, chronically sleep-deprived, had a fierce adrenaline rush from the pressure. GM sought to open the meeting with a 150-page document. "What's this?" Harry asked. "The agenda," came back the reply. Harry, almost laughing, said, "You can't run a meeting with a 150-page agenda!" and moved on to the list that he and Matt had compiled.

He had before him an eight-page spreadsheet of several dozen topics that needed to be addressed in the bankruptcy—everything from GM's more than 500,000 supplier contracts to its relations with sovereign governments around the world. He had assigned responsibility for each item to individuals from the government group and GM. Next to those names, he had columns for next steps, deliverables, and due dates. In deference to GM, Harry started the meeting by framing bankruptcy as the fallback plan—GM officially still held out hope that it would find enough takers for its bond exchange offer to avoid Chapter 11. But no one else in the room saw that as a serious possibility, and by this point, privately, neither did Fritz nor most other top GMers. Then Harry dove in and began working through the list, item by item, to be sure everyone knew what would be expected.

Next to him was Matt Feldman, our stalwart bankruptcy sage. Minutes after the Chrysler petition was filed the previous day, Harry had gone to him and said, "Feldman, now you're mine." Though exhausted, Matt had dragged himself to New York for this all-day meeting.

The bankruptcy plan Matt envisioned for GM was an outsize version of the one he'd designed for Chrysler. With the help of many billions of taxpayer dollars, GM would separate its assets into two companies. "Old GM" would retain the factories, equipment, brands, and real estate that the business no longer needed. Its sole purpose would be to dispose of these assets, using the proceeds to repay the creditors that the other company, Shiny New GM, had left behind. The new company would own all the assets GM
did
want to keep. Free of crippling costs and debts, this new business would go forth as a streamlined, revitalized competitor on the world automotive scene. We meant it to be not only viable but also highly profitable.

The meeting ended at 6
P.M.,
having stretched nine hours. Even though it was Friday night, Harry didn't stop; he had booked a session with Carl Icahn, the legendary corporate raider and multibillionaire, who had lately expressed interest in acquiring a stake in Delphi. Icahn's offices were a couple of elevator rides away, on the forty-seventh floor. Matt dutifully accompanied Harry on the short journey, but was soon called back to Connecticut over a family matter. He was not sorry.

Harry, who liked to have an aide-de-camp by his side, summoned Sadiq Malik to Icahn's office as soon as Matt left. The meeting, while not producing any meaningful progress, lasted until after midnight, nearly killing the young analyst, who was too scared of Harry to take a bathroom break.

***

Neither Ron Bloom nor I attended that kickoff meeting in New York. My modus operandi has always been to delegate to younger colleagues whatever they can handle, and I felt comfortable with Harry's ability to manage the situation. Ron, however, having ushered Chrysler toward resolution, was eager to turn to GM. This marked the start of the only serious interpersonal conflict at Team Auto. Although Harry and Ron certainly had ideological differences, the friction between them was more a matter of style than substance. Both were take-charge guys. Harry saw GM as his baby; Ron, seventeen years older and officially the auto task force's deputy, viewed himself as senior to Harry.

The tension flared in Washington the next week. Ron went to Harry and said, "Let's sit down and divide up how the GM work is going to get done."

"Why do we need to divide it up?" Harry asked. "It seems to be working fine."

"Well, you've got some expertise, I've got some expertise, why don't we sit down and talk about it?" They walked down the long basement hallway to the Treasury cafeteria to chat.

"If you think I'm doing something wrong or something's not working well, let's talk about that," Harry said as they found a table. "But if all you want to do is take ownership of a process that's going really well, I don't think that makes any sense."

Ron repeated his thought about different skills.

"Tell me what your different skills are," Harry countered.

"I've done this before."

"I've done this a lot before as well. But if you think I am doing anything wrong, I'd be happy to address it."

Harry was not the only Team Auto member to feel some discomfort about Ron. After working shoulder to shoulder with him on Chrysler, Matt considered him too often dictatorial. Harry, having watched that interaction, was concerned that the same difficult dynamic could develop with GM. He also had a strong view that deal terms worked best when there was a clear leader with accountability. Nonetheless, Harry recognized that there was an enormous amount of work to do on GM and indicated that he was open to carving off pieces of the project. They agreed that Ron would spearhead our dealmaking abroad, particularly with the governments of Canada and Germany.

But when Ron said he also wanted to take over the talks with representatives of GM's major bondholders, the conversation got hot.

"Frankly, Ron, I think I've done more bondholder negotiations than you have," Harry was saying. "But also, I have to say, these guys don't like you."

"What do you mean?"

"They think you totally sold out to the unions. They don't trust you. They don't think you can be an honest broker. Whether that's true or not, that's what they think." This set Ron back. He reflected for a minute, concluding that he did not want to risk putting his ego ahead of the salvation of GM. "Okay. Let's set that aside and talk about the UAW."

Harry welcomed Ron's involvement on that front. He believed, as we all did, that Ron's knowledge of labor issues and his credibility with Gettelfinger were invaluable. But Harry insisted on playing an equal role. As long as Ron didn't treat him as a subordinate, he said, they could team up on the UAW talks.

The confrontation seemed to settle the differences between Harry and Ron, but after returning to our work area, Harry quietly issued orders that every GM-related e-mail to Ron must also be copied to him to make sure he stayed in the loop.

As Harry and his team crunched numbers for GM's financial restructuring over the next few days, they discovered a large flaw in our plan. In overhauling Chrysler, we had "invested" the $8 billion of new taxpayer money almost entirely as debt on the new company's balance sheet. We'd assumed we would do the same with GM. But GM, they realized, was going to require far more new money than Chrysler, even allowing for the automakers' difference in size. Harry's preliminary estimates showed that Shiny New GM would need at least $30 billion, on top of the $15.4 billion the Treasury had already put in. Yet that much new debt would leave the company groaning under a potentially unmanageable load of fixed liabilities—much like old GM. Harry couldn't find a way out of this.

After wrestling with the problem, Harry bounded into my office one morning waving a sheaf of papers. "We've been thinking about this the wrong way," he said. "We've got to equitize most of our debt." I immediately understood the Wall Street shorthand: he was proposing that instead of lending most of the money to GM as we had done with Chrysler, we infuse the bulk of our money into GM by buying stock.
This would mean that the government would own General Motors.

I bought the logic of what he was saying. Leverage can be a good thing—I had made my living for nearly a decade in leveraged buyouts, and the businesses we'd worked with had almost all thrived. But debt can be particularly risky for companies in cyclical, capital-intensive industries like automobiles. A streamlined, relatively debt-free GM would have the flexibility and financial cushion to succeed. Yet I was also painfully conscious of a promise I'd made early on to Larry: "Don't worry. We're not going to end up owning GM." If Harry's analysis checked out, the question would be how to sell this turnabout to Larry.

This would bring us into one of the hottest controversies of the financial crisis. Nationalization had been in and out of the headlines since autumn, when the Bush administration had seized majority ownership of AIG. It turned the failed insurer into a joint operation of the Treasury and the Fed; nominally the company had a board of directors and CEO, but Hank Paulson and Ben Bernanke oversaw all the important decisions.

In February, as the economy and the stock market continued to slide, calls for outright nationalization of banks had increased. The calls came from a motley assortment of sages. Not surprisingly, leftish economists like Paul Krugman and Joseph Stiglitz were heard from frequently and loudly. But former Fed chairman Alan Greenspan, a lifelong champion of laissez-faire, weighed in, telling the
Financial Times,
"It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring." Spicing the mix was a band of hedge fund and vulture investors, who argued that based on any fair valuing of assets, many major banks were insolvent and should be taken over, just as the FDIC had done in many, much smaller circumstances over the years.

Tim and his Treasury team strenuously resisted. As repugnant as it was to leave troubled banks in the hands of those who had brought them to the edge of the precipice, Tim fervently believed that his plan for stress tests of the nineteen big banks, capital infusions, and other programs to remove troubled assets from their balance sheets was the safest way to restore the banks to financial soundness without risking panic in the markets.

But the pressure on the administration to do something more—anything more—was intense. Members of the President's inner White House circle, none of them banking experts, had relationships with many Obama supporters and donors who purported to have that expertise. With the stock market in seeming free fall, they barraged the White House with calls, e-mails, and memos.

On Sunday, March 15, President Obama had gathered his closest advisers, his economic team, and his banking experts in the Roosevelt Room to try to thrash out what to do when the stress test results landed and what else, if anything, to add to the medicine being administered. The discussion on that damp, chilly afternoon was heated; after a few hours, the President went upstairs to take a dinner break with his family, imploring his advisers to try to come to a consensus.