Overhaul (40 page)

Our Canadian partners grew grumpy as the funding requirement increased. Both the commonwealth government in Ottawa and the provincial government of Ontario dispatched teams to monitor the bankruptcy preparations. Team Auto didn't have enough staff to tend to them all. One evening during the hectic final week, our young colleagues David and Sadiq found themselves in a conference room at Weil, Gotshal & Manges, Treasury's legal adviser, explaining to a dozen Canadian officials why we'd just added $5 billion to the deal.

The Canadians were also concerned about GM's management. Sergio had impressed Boothe much more than had Fritz, and the emissary had told colleagues, "These GM guys don't have the same sense of fear that Chrysler does. I would feel better if GM had a Sergio." Fritz was moving too slowly, in Boothe's mind, and seemed like just another GM guy rather than the fresh blood the company needed.

As the bankruptcy filing neared, Boothe expressed these concerns to Feldman and Markowitz. "We know you are driving the bus here, but we are uncomfortable with him," he said and added, "We don't have anyone else who could do it, but we don't think it is him."

My month was spent juggling pieces of everything. Senators and representatives peppered me with calls, lobbying to keep open GM facilities in their states or districts. Often these calls sounded pro forma, as if the legislator were checking a series of boxes so he or she could attest that everything had been tried. Other calls were aggressive, occasionally hostile. I knew better than to antagonize congressmen so I always listened politely. Sometimes the monologue droned on so long that I could get a number of e-mails answered.

I was also obliged to take courtesy meetings with ambassadors from countries where GM operated, as well as meetings for the sake of bureaucratic ritual, such as the procedure for finalizing
TARP
investments. Still other meetings were favors to people important to the administration, like my session with a group from Utah who had no money but a great idea to manufacture an electric Hummer. If nothing else, such visits were a constant reminder of the scope of the auto crisis. One day, an old friend who had become CEO of Avis Budget came by and explained how the collapse of the auto finance market threatened his company's ability to pay for the cars it needed for its business.

GMAC hung over me as a huge piece of unfinished business that could torpedo everything else we were accomplishing. I spent days with Brian Stern and Rob Fraser figuring out how to structure and value the capital infusion that GMAC was going to need. Even more frustrating was continuing to do battle with the FDIC. As a way to keep the pressure on, we had proposed that GMAC take on the Chrysler financing business for only two weeks, seemingly plenty of time to tie up loose ends with the FDIC.

But the FDIC kept retrading and piling on new asks. Sheila Bair's designated negotiator was Chris Spoth, the rather meek career FDIC official whom we had previously encountered. He seemed to have no authority whatsoever. More than once, we would come to an understanding on a point that we would confirm by e-mail, only to receive an e-mail back the next morning denying that an understanding had been reached. At another juncture, the FDIC asked for a letter saying that Treasury would stand behind GMAC no matter what, and then kept changing the language. Tim thought the new language would make the FDIC look weak and tried, unsuccessfully, to reach Bair. "I'll write whatever you guys want, but I really think this is counter to your objective," he told Spoth. Of course Spoth needed to check with Bair. "You're right, let's go back to the other language," he responded a few minutes later. (Bair would duck even Tim when she wanted to; once her office said she was on a plane when in fact she wasn't.) Bair also wanted a letter from Tim thanking her for assisting our effort; we took to calling this the "great American letter."

Most frustrating was that after agreeing to provide the help we were seeking, the FDIC came back and increased the amount of capital that it wanted GMAC's bank (Ally) to maintain to far beyond that required of any other bank. The excessive capital requirement would have many negative repercussions. It would reduce GMAC's liquidity at the holding company and therefore its financial flexibility. Perhaps more importantly, it lowered the bank's lending capacity, the opposite of what we were trying to achieve. And it reduced GMAC's profitability and therefore the value of the $13.1 billion of new
TARP
money that we were preparing to invest. So the FDIC's unreasonable requirement would cost U.S. taxpayers significant money. Whose side was the FDIC on, I wondered. We whittled back the duration of the higher capital requirement a bit but ultimately had to swallow and agree. We had no alternative.

The political pressure on Team Auto steadily increased. The impacts of Chrysler's restructuring were beginning to be noticed and objected to. For instance, Chrysler had decided to leave behind workers' compensation claims in its Old Carco, which effectively left the state of Michigan holding the bag for more than $100 million in obligations, prompting angry calls from the governor. Another commotion was triggered by a botched announcement by Chrysler about closing eight U.S. plants: it mistakenly gave the impression that an engine factory was being shut in order to move production to Mexico.

The politics around GM, with its greater size and complexity, not to mention its iconic status, promised to be even more intense. Our long to-do list was full of pitfalls. One day Fritz called me to propose moving GM headquarters from the Renaissance Center to GM's Tech Center in suburban Warren, where we had driven the Volt back in March. The move would cut costs, he said, as well as symbolize the leadership's determination to become more down-to-earth and hands-on. I thought the idea was great, just the kind of action I was hoping to see from Fritz. But when I described it to Deese, he went nuts. "Are you out of your mind?" he said. "Think what it would do to Detroit!"

Though small in financial implications for the company—the headquarters was worth perhaps $165 million, compared to the $626 million that GM had paid for it just a year earlier—GM's departure would be a major blow to Detroit. In a one-year period, the once proud city that was already suffering with one of the worst unemployment rates in the country, and among the worst murder rates, would see two of its biggest employers go bankrupt, its flamboyant ex-mayor Kwame Kilpatrick convicted of perjury, and its NFL franchise, the Detroit Lions, become the first in football history to go 0–16.

Deese had some people analyze what a mostly vacant RenCen would mean to Detroit real estate. The estimate: a double-digit hit on already deflated real estate prices. Fritz proposed donating the RenCen to the city—though who would actually use it was unknown.

Leaving the RenCen made strategic sense, however, and was supported by Harry and David. The Tech Center had lots of empty space and much larger floors, so more departments and people could sit near each other, improving teamwork and communication in a culture that desperately needed more of both.

The debate, not surprisingly, soon moved beyond Team Auto. Gene Sperling was one of many to fight the move. "It's over for Detroit if you do this," he yelled in a meeting at Treasury. "Don't do this to Dave Bing"—the city's new mayor, a former NBA star and successful auto-supplier entrepreneur. "He's a good man trying to do a good thing." The city relied on GM for $20 million a year in tax revenue, Gene pointed out, and the blowback would be fierce. Deese checked with Larry, who in turn spoke to Rahm, and word came down that the move would be a bridge too far. Fortunately, this unique intervention into a specific GM matter was never leaked to the press, saving us from having to explain how it comported with our policy of letting GM and Chrysler manage their own affairs.

We'd so far been able to avoid the scalding controversy over executive compensation, but no more. The issue found us as we worked through a $7.9 billion assortment of GM obligations called "other pension and employment benefits." Lumped under this innocuous-sounding label was a dizzying hodgepodge of programs, including pension plans for thirteen "splinter" unions, most of which no longer had any active workers at GM. This last item alone was costing GM more than $300 million a year.

But also on the list were pension obligations for senior executives—including $22.1 million owed to Rick Wagoner. Like many big companies, GM provided a so-called supplemental pension for highly paid executives. While GM's basic pension plan for all employees was backed by nearly $100 billion of investments, this "
SERP
" was not backed by anything except the company's promise to pay. Of course no one—not the company, not the executives, not the high-level retirees—ever imagined that GM could go bankrupt, because in bankruptcy these retirees had the same lowly status as bondholders. In other words, retired GM executives could see this hefty benefit wiped out. We knew we could try to prevent that by making the same argument we'd used to justify funding the
VEBA:
just as you need workers to make cars, you need executives to run the company, and wiping out the pensions of retired executives would demoralize active ones. But the atmosphere around executive compensation was way too charged for us to take that position.

This was an issue above my pay grade, so I put it on the agenda for one of our late-afternoon updates with Larry. He pounced on it as if the future of the Obama administration rested on our response. Large reductions would be required, he said; that much was clear. To maintain the fiction that such decisions were being made by GM and not by us, Larry set forth four principles for GM to follow in cutting the $7.9 billion obligation. Perhaps we shouldn't have been surprised when GM came back with a proposal that was blatantly tilted in favor of the executives at the expense of the splinter unions. It took many days and several rounds of discussions to arrive at changes that fit within Larry's dictates. The executive pensions would be cut by two-thirds.

But this meant that Rick Wagoner was owed $7.1 million. Larry's first instinct was that Rick should get little or nothing, given that GM had gone broke on his watch. "Do you know what a senator gets for his pension?" he asked me, implying that no public servant would understand why Rick should get millions. I felt bad for Rick; he certainly had failings as a CEO, but he had put his heart into the job and believed in GM so strongly that he had never cashed out any of his stock. I argued that Wagoner should be treated no better or worse than the other retired executives. In the end, Larry agreed.

Larry generally kept Rahm and the President informed of potential flashpoints in Team Auto's work, but he blocked out time during the President's Daily Brief on Friday, May 29, for a last-minute review. Three days hence, on June 1, the President would announce that the federal government was putting General Motors into Chapter 11. Larry didn't want to take the chance there'd be a political surprise.

Unlike the first time Larry had dragged me to the Oval Office, I arrived at the White House knowing we were scheduled to meet with the President. I also had been told to expect cameras—NBC was on the premises shooting a special called
A Day in the Life of Obama's White House.
As I approached the West Wing entrance, I could see a video crew taping the arrivals. Making my way to Larry's office, I encountered camera crew after camera crew crowding the tight confines of the West Wing. (I later learned that thirty-two cameras were prowling the White House that day.)

We headed downstairs to the Oval, where we stood waiting by Katie Johnson's desk. Promptly at 10
A.M.,
the door opened, Hillary Clinton emerged, and it was our turn. With NBC in tow, we took our seats on the couches and chairs facing the President. The briefing began with pleasantries and then the President asked Larry to open the discussion without any "market sensitive" information. Larry did his best under the awkward circumstances until, mercifully, Rahm evicted the cameras and we got to work.

We reviewed for the President the progress on the restructuring: the improved cost structure, the reduction in labor costs, the additional $30.1 billion that we proposed to inject. He was familiar with all these items, and I moved through them briskly, saving the most worrisome for last.

While a majority of GM's bondholders had accepted our final proposal, we expected dissidents to fight us in court, just as the Chrysler lenders had done. In this case, there was a chance they would renew their campaign portraying GM and the administration as callous toward small investors.

Next we discussed the UAW's latest public stance. Rather than use the bankruptcy to focus on job cuts (polls showed many Americans thought UAW workers were overpaid), the union was highlighting the fact that GM, like many manufacturers, had been gradually moving production out of the United States to countries with lower labor costs. The union was complaining that the restructuring would transfer more production to Mexico and Asia.

This was technically true, we told President Obama. However, the production was coming from Canada, not the United States, and the move had been set before the restructuring agreements. We explained the vitality commitments and other arrangements now in place to protect jobs in both countries henceforth.

Larry and Diana outlined the "USG as Shareholder" policy, which would be unveiled in fact sheets accompanying the President's speech. We also had an unspoken understanding that, following an initial public offering by Shiny New GM, the government would sell at least 5 percent of its shares each year and be completely divested within eight years. This had been heavily litigated between Team Auto and Larry. Harry and I hated the idea of committing to stock sales that might not be financially optimal, but Larry had been adamant, and understandably so. The President seemed pleased.

Finally, we came to executive compensation. I briefly sketched the background, trying to avoid the mind-numbing complexity of splinter unions and
SERPS
to get to the item that we wanted to be sure President Obama signed off on: Rick Wagoner's pension. I explained the arrangement that would pay him $7.3 million over five years, and I could see the President's jaw muscles tighten. Suddenly I felt that I was indeed in the presence of a community organizer; the President plainly had difficulty with the notion of writing a check that was about one hundred times the annual income of a GM worker to the CEO who had brought the company down. Obama grimaced and reluctantly acquiesced. I found it striking that the President of the United States had spent more time on an issue of executive pay than on the question of whether to dismiss a major CEO in the first place.