Overhaul (49 page)

GM's IPO would be "a historic day for America," Jimmy told the assembled Treasury and GM officials. The bank's pitch book, its cover emblazoned with "The Best Car Wins," included a copy of an old
Wall Street Journal
article about JPMorgan's funding of a GM deal in 1920. Jimmy also volunteered that the bank would be willing to take its fees in GM equity. And to anyone who was interested, he showed pictures on his BlackBerry of his new $110,000 cobalt blue ZR1, a top-of-the-line Corvette. He'd bought it to demonstrate his commitment to the product.

Bloom did not miss the opportunity to tease. "Oh, you like us now," he said to Jimmy. Others asked if Jimmy would like to visit the old rooms at Treasury where he and I had butted heads.

In the end, GM picked JPMorgan and Morgan Stanley as co-lead managers. The Treasury drove a hard bargain on fees. On a mega-IPO, the banks would typically keep 2 to 3 percentage points of the "gross spread"—the difference between the public offering price and the price per share paid by the underwriter. But Bloom and his team argued that the chance to be part of this once-in-a-lifetime deal warranted a big discount. The two banks agreed to a 0.75 percent gross spread after another bank, Goldman Sachs, offered to work for that low fee.

On August 12, just days before an expected filing of an initial public offering prospectus, GM threw its throng of observers and stakeholders a curve. In the middle of a second-quarter earnings call, whose good news had been thoroughly previewed by Whitacre the previous week, the chief executive suddenly announced that he would be stepping down on September 1 and that director Dan Akerson would replace him. The analysts and reporters were stunned. Wild rumors circulated—had the government pushed out the tall Texan just as it had Rick Wagoner?

The board had been just as surprised a few days earlier when Whitacre had informed them in the executive session portion of its regular monthly meeting that he was quitting. The only clue the board had received was in the advance agenda: extra time had been allotted for the executive session. The directors were far from thrilled. Whitacre wasn't perfect—he hated detail work and wasn't regarded as a genius—but his decisiveness and emphasis on speed had been just what GM needed. A brief effort was made to talk Ed out of his decision, but Ed was not a man who changed his mind.

Several directors felt left in the lurch. Just as when they had asked Fritz to leave in late 2009, GM had no internal candidates (this was one of many management problems that remained to be addressed). With the IPO looming, there was no time to organize and conduct a search. Once again, the board would have to look among its members for a chief executive.

Three potential candidates—Akerson, Russo, and Girsky—were asked to step out of the room while the others deliberated. ("We should ask everyone" if they want to be considered, Kathy Marinello said, in one of her usual half-baked comments, annoying the other directors.) They narrowed the list quickly. Girsky was not seen as a plausible replacement—no real management experience. And while Russo had done well as GM's lead director, her past performances as a chief executive had been rocky. That left Akerson.

In my view, he was the right choice. Akerson and Whitacre possess the same kind of toughness and decisiveness. Akerson, younger and more energetic, will likely have even less patience for the old GM ways than Whitacre did. Once he became so impatient with doctors who were treating his gallbladder in a German hospital that he removed the tubes from his arm, checked out, and flew back to the U.S. On top of that determination, he brings the private equity sensibility I value highly.

My former Team Auto colleagues David Markowitz and Sadiq Malik had been Akerson fans since he told them at their first meeting how much he had hated losing a golf game the day before on the eighteenth hole. "He was more passionate about a round of eighteen than most of the employees at GM were about their company," David remarked to Sadiq after the meeting.

His sole potential disadvantage is age. At sixty-one, Akerson may wish to serve only for a few years, which would necessitate yet another change at the top. Despite this, he might well have gotten the job even if the board had conducted a full-blown outside search. His name, after all, had been floated twice before, when Fritz was fired and again at the beginning of the abortive search to replace Whitacre when he was still interim CEO. On both occasions Akerson had declined to be considered. But by spring, he was kicking himself for letting the opportunity slip. He had come to realize that he'd much preferred his years as a chief executive at General Instrument and other companies to being a private equity guy. A former naval officer, he also saw becoming CEO of General Motors at this crucial point in history as an opportunity for public service.

Choosing GM over Carlyle entailed a major financial and personal sacrifice for Dan. It meant walking away from a massive amount of Carlyle equity for lonely, grueling workweeks in Detroit, with weekend commutes home to Virginia at his own expense. Though Dan took the job without knowing how much he would be paid, the compensation was sure to be low by CEO standards. Whitacre's compensation had been limited to $9 million a year, mostly in the form of stock, placing him in the bottom 25 percent of comparable CEOs, and the same government strictures on executive pay would apply to Dan.

As glad as I was to see Akerson step up, I shared the board's disappointment with Whitacre. He had promised to see GM through its initial public offering, which the directors took to mean that he would stay until at least mid-2011. (A company can't market an IPO if it knows of impending management changes, and in any event, the board would want to mount an orderly search for a more permanent chief.) Instead he forced GM to scramble to appoint its fourth CEO in less than eighteen months. If anyone had asked Jack Welch, I'm sure he would have advised against this rapid shuffling of CEOs.

I was also disappointed when I heard that Akerson would become chairman as well as CEO on December 1. Nothing has occurred to change my view that "best practices" in corporate governance means separating the chairman and chief executive roles. And if ever a company needed to hew firmly to best practices in corporate governance, it is the one that owes its existence to the support and goodwill of the American taxpayer: shiny new General Motors.

S
HINY NEW GM
celebrated its first birthday on July 10, 2010, a month after the first anniversary of the reconstituted Chrysler. As hard-nosed realists, all of us on Team Auto have been, for the most part, reassured and relieved by the generally good news from Detroit since those important anniversaries. General Motors and Chrysler continue to pay their workers and are gradually adding shifts as they sell more cars. The unemployment rates in Michigan, Indiana, and Ohio, while still painfully high, have begun to edge down. We remain proud of the work that got us to this point, a mission that was not designed to further a particular economic theory, serve anyone's ideology or political party, or make anyone a buck (beyond the companies and their workers). So devastating were the possible consequences of this crisis that we were impelled to push ourselves, to question and requestion, to look at each decision from every possible angle and perspective. We were scared enough to stay focused on one and only one objective: getting it right.

To be able, on August 18, 2010, to pick up General Motors's newly filed 734-page IPO prospectus was for me an emotional moment. This thick legal document symbolized, like no other development thus far, the transformation of so-called Government Motors back into General Motors. Page after page of figures told the story of a remarkable turnaround. The decision to move forward with this public offering was the strongest and most telling indication that the U.S. Treasury will recover most if not all of the $82 billion the American taxpayer staked on overhauling Detroit.

Let's pause to run the numbers. Here's where the $82 billion went:

1. Includes $0.9 billion loan to GM for GMAC rights off ering on January 16, 2009.

2. Includes $0.5 billion loan to Chrysler for GMAC loss share agreement.

3. Actual size of the Supplier Support Program was $5 billion. Given the general success of the program, a much lower amount was needed to stabilize the supplier base.

Assessing what the taxpayer has gotten in return is more complicated. GM's value won't become clear until after the IPO, when the stock will be publicly traded and the market sets the price. As of August 2010, the best proxy is the trading level of old GM bonds, to which we grudgingly allocated 10 percent of the equity of Shiny New GM (along with some warrants). By that measure, the value of Treasury's 60.8 percent ownership of GM is approximately $31 billion. Adding to that the $6.7 billion of debt that GM has already repaid, and $2.1 billion of GM preferred stock, brings the total to nearly $40 billion.

This is $10 billion more than the $30 billion the United States injected
into GM at the time of its bankruptcy fi ling as a result of Team Auto's work. But it's roughly $10 billion short if you also count the emergency $19.4 billion spent by the Bush and Obama administrations to prop up GM before Team Auto came on the scene. I view that $19.4 billion as lost money—a cost of the delays due to the presidential election, the transition, and the doctrine of "one President at a time."

Question marks remain regarding the smaller but still significant commitments of taxpayer dollars to Chrysler and GMAC. I've described the heated debates in the West Wing and at Treasury about Chrysler; Team Auto always knew that asking the Treasury to infuse another $8 billion into this hollowed-out, North-America-only player was a risky call. I was delighted when Chrysler notched two successive quarterly operating profits in the first half of 2010. But until we see sales results from new products due to appear in dealers' showrooms in late 2010 and beyond, we cannot know whether our surgery saved the patient.

Meanwhile, the auto loan portfolio belonging to GMAC (which had changed its name to Ally) performed well throughout, just as we had assured the FDIC it would, even as the company continued to unwind its terrible mortgage portfolio. The trading levels for Ally bonds indicated that the market viewed the company as solvent, although not without risks. Nonetheless, the value of the $11.3 billion of
TARP
equity was still not clear.

So predicting with any accuracy how much of the $82 billion of bailout money will ultimately be recovered is a difficult exercise. If the return of the government money were managed as it would be in the private sector, I believe the government would have a very good chance of getting back all of its money, including the early bridge financing. But with the White House justifiably eager to be out of the auto business, premature exits may occur. If we ultimately lose $10 billion or $20 billion on the auto rescues, that seems a small price to pay for averting a major economic calamity in the industrial Midwest and helping keep the national economy from spiraling from deep recession into outright depression.

President Obama was well justified during the summer of 2010 to take a series of victory laps, visiting plants belonging to each of the Big Three as well as smaller facilities working toward next-generation vehicles. "We are moving in the right direction," he said on a July 30 visit to Detroit. "The trend lines are good." Indeed, in the time since GM and Chrysler completed their restructurings, the auto industry added 76,000 jobs, a remarkable turnaround from the 460,000 that had been lost in the year before their bankruptcies. Summer shutdowns were canceled for some plants and shifts were added at others. I thought of the faces of the rank-and-file workers whom we saw on our trip to Detroit, and felt proud of the improved job prospects that we had provided them.

I could not help but be struck by the change in mood from the dark winter days of 2009 when I despaired over the seemingly impossible task before us. Respected publications like the
Economist
heralded the outcome. "Rising from the Ashes in Detroit," was the headline of one story in August 2010. The subheading read, "General Motors' return to the stock market heralds a remarkable turnaround for America's carmakers." If anyone had predicted at the start of our work that by the summer of 2010 the auto bailout would be one of the clearest successes of tough presidential decisionmaking, they would have been derided.

Even so, the auto rescue effort continued to take flak. Senator John McCain, for example, said in November 2009: "I don't think we ever should have bailed out Chrysler and General Motors. We should have let them go into bankruptcy, emerge, and become viable corporations again."

This is the kind of posturing that makes me reluctant to want to return to Washington. McCain, a bright and experienced man, had to have understood the enormity of the crisis the automakers faced at that dangerous juncture in our history. But he turned the debate political with a sound bite that served not to educate anyone but only to encourage narrow-minded listeners in the kind of misunderstanding that will ultimately do no one any good. Had he learned nothing from the debates of spring 2009 about bankruptcy or the state of the financing markets? We were lucky to have been given the opportunity to find the right course of action for Detroit and then follow it.