Overhaul (8 page)

"It's not a hard decision, it's an unpleasant decision," responded Paulson.

Ultimately the President ordered his staff to find a course of action somewhere between the more general House bridge-loan bill and the specific, mandatory conditions proposed by Corker. Keith Hennessey's compromise was to use strictures similar to Corker's but make them nonbinding, subject to the car czar's judgment. Bush went for that.

On Thursday morning, December 18, the President put GOP hard-liners on notice that a bailout was imminent. Speaking at the American Enterprise Institute, a conservative think tank, he gave a surprisingly forthcoming response to a question about autos. "This is a difficult time for a free-market person," he began. "Under ordinary circumstances, failed entities, failing entities, should be allowed to fail. I have concluded these are not ordinary circumstances." In September he'd chosen to bail out Wall Street, he said, because "I didn't want to be the President during ... the beginning of a depression greater than the Great Depression." Then he came back to Detroit: "I am worried about a disorderly bankruptcy and what it would do to the psychology and the markets. They're beginning to thaw, but there's still a lot of uncertainty. I'm also worried about putting good money after bad. That means whether or not these autos will become viable in the future."

Finally, in his customary, somewhat fractured English, he rebuffed ideologues: "Frankly, there's one other consideration, and that is, I feel an obligation to my successor ... I believe that good policy is not to dump him a major catastrophe in his first day of office."

Because Bush had taken two days to make up his mind, there was only one day left before most of Washington shut down for the holidays—and the President wanted to announce the auto rescue on national TV before the markets opened the next morning. But lending tens of billions of dollars isn't simple. The Treasury needed agreed-upon, signed "term sheets," not just from General Motors and Chrysler but from their financing subsidiaries, GMAC and Chrysler Financial.

Those negotiations stretched deep into the night. Around 2
A.M.
one of Paulson's colleagues took a call from Steve Feinberg, the chief of Cerberus, the private equity firm that owned most of Chrysler. Cerberus was proposing to turn over the automaker to the U.S. government for one dollar. Having witnessed the stalemate in Congress, the investor explained, he wanted to help resolve the crisis. The Treasury team mistook Feinberg's patriotism for a joke and just another sign of the automaker's desperate state.

Most of the staff members worked straight through. When the White House called at 7:30 to ask "Are you ready?" Jester was able to say, "We're looking good." The team delivered signed term sheets from both automakers. Characteristically, GM's paperwork didn't show up until just minutes before the President's scheduled airtime.

At 9:01 on that overcast, drizzly Washington morning, George Bush made it official, announcing the biggest industrial bailout in American history, with $17.4 billion of
TARP
money headed to Chrysler and GM.

The announcement happened to fall on the same day as the annual White House senior staff dinner. For this, the eighth and final such event of Bush's tenure, many former staffers had been invited as well as the current crew, so about one hundred diners gathered that evening in the East Room.

At the end of the meal, Josh Bolten rose to address the President and his colleagues. "As everyone here knows, each year the senior staff chips in to buy the President a Christmas gift," he began. "One year we bought him a high-quality chain saw. Another year we bought him an underwater camera. Last year, we all pooled our funds and bought him a top-of-the-line weed whacker for the ranch. Mr. President, this year for Christmas your senior staff chipped in and bought you ... Chrysler!" The group burst into laughter and applause.

In retrospect, the Bush team's approach to the problem proved more thoughtful than I originally understood. For one thing, the loans bought time, not just until January 20, inauguration day, but until at least March 31, giving us a little breathing room. For another, Bush appropriately designated the Treasury secretary as the ultimate authority under the loan agreements, effectively declaring that there would be no independent car czar. Finally, adopting Corker's conditions—as imperfect as they were—provided a baseline of expected sacrifices that paved the way for our demands for give-ups from the stakeholders.

M
Y CAR FROM
Washington's Reagan National Airport pulled up in front of a nondescript building on 6th Street NW where only the guards and temporary concrete barriers announced the presence of something unusual—the transition headquarters of the President-elect. Inside, Barack Obama, yet to be inaugurated, was preparing to take on America's biggest economic crisis since the Depression.

Although stepping across this threshold marked my physical entrance into political life, the hard knocks had started well before I got off the plane. Behind the scenes I was already under fire from Senator Deborah Stabenow and others from Michigan's congressional delegation—members of my own party!—who had heard of my appointment and didn't feel I had sufficient knowledge of the auto industry to help Detroit stay open for business. Perhaps my new bosses or I should have anticipated it, but we'd been preoccupied with trying to get under way amid the seeming free fall all around us. For me, the friendly fire only added to my terror about going in to lead a team that didn't yet exist on what gave every appearance of being a political and economic suicide mission.

For better or worse, history in this administration was going to be made at an accelerated pace. I could not help but imagine a disturbing scene set six months or so in the future in which President Obama, a man I admired, would have to face cameras and reporters and a lot of angry people and explain what had gone wrong: on his watch, two major automakers—iconic companies long among the largest and most important in the United States—had closed their showrooms, fired their workers, and shuttered their plants. The manufacturing sector was in turmoil. The state of Michigan was insolvent. A million or so people had been added to the unemployment rolls. The economy had received a terrible shock and was spiraling rapidly toward depression. And though I was in the background, I knew that the eyes of the President and his key advisers would be on me, because the job of my team had been to find a way to prevent this, and we had failed.

No realist could have avoided such forebodings. Chrysler and GM, both on the brink of failure, had been propped up by emergency government loans. The week after his election, in Chicago, at Obama's first substantive sit-down with his economic advisers, it was conceded that no situation on the economic front appeared thornier than the one I had been recruited to manage.

Obama had asked, "Is there any way these guys are going to avoid bankruptcy?"

"Unlikely," he was told.

"Why can't they make a Corolla?"

"We wish we knew," replied his advisers.

We would have very little time. The $17 billion in
TARP
funds provided by the Bush administration was draining away fast. Doubts were widespread that the automakers, required to submit "viability plans" on February 17, would make a sound case for more help.

Quite possibly ahead of us was, despite the best efforts of many, the implosion of an industry once synonymous with American ingenuity—at a moment of great vulnerability for the nation and for a new president who was inheriting a war being waged, not in Iraq or Afghanistan, but in the U.S. economy, where all the casualties were here at home.

As I hurried through the mid-January chill to transition headquarters, Secret Service agents stood guard near x-ray machines and scanners behind bulletproof glass. Upstairs, in a corner of the eighth floor, the President-elect's economic team was crammed into a half-dozen rooms. Tim Geithner and Larry Summers had offices the size of those of vice presidents at my old firm, with their names printed out on 8½-by-11 paper and taped to their doors. Obama himself occupied a space a short hallway—and a few more Secret Service agents—away.

Messy piles of paper and a mountain of leftover coffee cups testified to the transition team's long hours, but the mood was not despairing. Although the situation Obama had inherited was frightening, his victory represented a mandate for change, and change the incoming administration was determined to effect. Fixing the problems that threatened to add the Detroit automakers to the junk heap of old American dreams was very much on its to-do list. In this crisis atmosphere, the normal pomp of government was, at least at this informal moment, a quaint notion: incoming cabinet secretaries labored side by side with interns. Meetings gathered spontaneously in cramped corners. Rahm Emanuel strode the halls like a military commander.

I still faced vetting, but we needed to plan for the days ahead. With many still questioning the young President's readiness for his new assignment, the public had to perceive Obama as being on top of the challenges. Unemployment was soaring. Another new disaster on Wall Street could easily occur. For GM and Chrysler, there was the difficult, controversial question of bankruptcy, the course that most of us considered obvious, but scary to think about. No one had ever taken industrial companies of this size and complexity through bankruptcy before.

With nearly $100 billion in assets, GM alone was larger than all the U.S. airlines that had gone bankrupt in the past fifteen years, combined. And while automakers and airlines both depend on consumers, the automakers need their long-term goodwill more than any airline does. A passenger's contract ends at her destination gate. But when you buy a new car, you want to be able to count on years of warranty coverage, and to feel confident that you can eventually sell or trade in the car for a reasonable price. We could find no precedent for a company selling a product like autos keeping its customers in bankruptcy. If car buyers were to abandon Chrysler and GM, all the money in
TARP
would not be enough to rescue them.

What was more, with autos, the new administration was starting from scratch. On the case were two extremely diligent generalists who had been scrambling since the election to get up to speed on Detroit. They were Josh Steiner, my partner at Quadrangle, and a public-policy maven named Brian Deese. I'd worked with Josh for years but scarcely knew Brian. In the coming months, I'd end up spending more time with him than with my wife.

Young and enthusiastic, Brian was a Boston-area native and a Middlebury College graduate, with a major in politics, a minor in economics, and a radio show called
Bedknobs and Broomsticks.
He'd done stints at several think tanks and completed most of three years at Yale Law before dropping out for the Obama campaign. (At Larry's affectionate insistence, he would finish his law degree in August 2009.) After Obama won, he'd loaded his dog into his car and headed for Chicago, where he landed a spot on the transition team. (Brian's closest encounter with automaking had been sleeping in the car in the parking lot of an Ohio Pontiac plant.) A rising star, he would later be dubbed by the
New York Times
"The 31-Year-Old in Charge of Dismantling GM."

The economic meeting with Obama in Chicago at which the auto situation was reviewed had been scary for Brian. "This is basically just darkness," he sat there thinking.

Steiner and Deese had kept Obama and his top lieutenants informed as the Bush bailout took shape. The "one President at a time" policy limited their ability to make inquiries, but they'd picked the brains of members of the transition team who had restructuring experience, including Paul Volcker, who, twenty-nine years earlier, as chairman of the Fed, had been involved in the first Chrysler bailout. They'd quickly come to the same conclusion as the Bush administration, that a disorderly failure and liquidation of GM and Chrysler would be a terrible economic blow.

Steiner's and Deese's work also involved getting themselves and the President-elect's team briefed on the problems dogging the Big Three: the suffocating liabilities, excessive labor costs, overly large dealer networks, underused assembly plants, and on and on. In December, Deese had worked behind the scenes to try to help the Senate's last-ditch effort to craft an auto rescue, spreading the word that neither the Senate Democrats nor the UAW should expect the Obama administration to be a soft touch on labor matters. And they did succeed in influencing a key aspect of the Bush administration bailout—the replacement of Kaplan's idea of an independent car czar with that of a "President's designee" who would report within the normal executive-branch chain of command. Since the bailout was now part of
TARP,
the Treasury Department would be the official home of the Auto Task Force.

For help with financial modeling during those hectic weeks, Steiner and Deese had enlisted a thirty-one-year-old investment analyst, Brian Osias, who, despite a job on Wall Street, had volunteered his "spare time." The work pattern that emerged foreshadowed the crazy hours of our task force. At the end of a typical day, Josh and the two Brians would consult around 8
P.M.,
then the Brians continued with discussions late into the night. Next, Osias would hit the computer as Deese slept until 5
A.M.,
checking in with Osias upon rising. Then it was Osias's turn to nap—until he had to go to his office. The trio would talk on the phone again at 10
A.M.

Unfortunately for me, the notion of a car czar had taken hold in the popular imagination and in the media. After GM and Chrysler had received their initial loans at the turn of the year, attention shifted to the question of who would run the auto team. Josh Steiner, tired of juggling two jobs, was nudging Tim and Larry to replace him so he could turn his full attention back to Quadrangle. Deese was often the only one available to take calls from stakeholders in the auto world. "It was a little scary," he later admitted to the
New York Times.