Overhaul (38 page)

Now I needed to get the interim chairman on board. The challenge, however, was that Kent Kresa was loving his role and wanted to stay until his mandatory retirement in 2010. I called Ed to see if he'd consider joining as vice chairman for a year and then succeeding Kent. But Ed held his ground. "I'm sixty-seven," he said. "I don't have that many more years in me."

I'd dealt with tricky personnel questions over the years but never with such high stakes. I consulted Larry, who was still unnerved by how swiftly I'd dismissed Wagoner and by the strong media backlash. "Let's avoid another public execution," he said, urging me to find a graceful and invisible way to ease Kresa out. Left to his own devices, Larry probably would have stuck with Kent for another year. But I agreed with Harry. With the future of General Motors on the line, I didn't want the fear of a messy transition to become the enemy of the perfect.

Larry urged me to ask Jack Welch's advice. So I called Jack, and after hearing me out about Kresa, he said, "This isn't something you can do over the phone or even in a meeting. Take him out for dinner, have a couple of bottles of wine, talk to him about his life and his family. Then see if you can make this his idea."

As it happened, Kent, who lived in Los Angeles, was scheduled to be in Danbury, Connecticut, for a board meeting a few days later. I was sure Jack would commend me for offering to go to Kent rather than asking him to come to Washington. I made a reservation at a quiet restaurant I knew (as it happened, I had a house in the area) and flew up to meet him.

We had our wine. We talked about our families. Kent commented on how pleasant the dinner was. Then he pulled a list from his jacket pocket and talked enthusiastically about people he hoped to recruit for the GM board. I felt like a fiancé about to tell his bride that the wedding was off. Kent was such a dedicated, nice guy. I gently explained the problem: I didn't want to lose Whitacre, and in any event, changing chairmen just one year after bankruptcy seemed wrong to me. But Kent brushed away my concerns. He left saying how much he had enjoyed our evening and how much he looked forward to working together.

My effort to apply Jack's formula had been utterly unsuccessful. Now what was I going to do? Still mindful of Larry's admonitions, I decided to bring Ed and Kent together to see if they could work it out on their own, and orchestrated a meeting in Washington. When the two arrived at Treasury at 5
P.M.
the following Wednesday, I escorted them to the Map Room (a conference room whose clutter undercut the grand name) and left them to talk. An hour later, I returned to find that neither had given an inch.

I felt there was no longer any choice. My determination to get the right result outweighed my fear of public controversy or Larry's wrath. I asked Ed to step out of the room while I spoke to Kent alone. I explained that while we were all grateful for his willingness to serve, given that he had only a year left, we couldn't pass up the opportunity to have Ed as chairman for the next five years.

"Well, I guess that's it then," he said and stood up. I could see his feelings were hurt, and I didn't blame him. As he left, he ruminated aloud about leaving the board early. That could lead to the media flap that Larry was hoping to avoid. In the ensuing days, I would call Kent regularly to try to persuade him to stay, and asked other board members to do the same. In the end, he remained and was gracious and helpful in the transition.

Ed had gone off to get ready for dinner with me, so I had a little time to deal with another urgent matter that had bubbled up earlier that same afternoon. The media had seized on a report of my personal finances and I'd become the story of the hour.

I had known from my arrival at Treasury that my financial disclosure form, all forty-seven pages of it, would be publicly available. The substance didn't worry me—my holdings had been closely vetted and approved—but I dreaded the possible invasion of privacy. As weeks passed and no reporter thought to ask for the information, I was beginning to hope it might never happen. But today that had changed. Bloomberg News obtained the form and broke a story headlined "Obama Automobile Adviser Rattner Worth at Least $188 Million." The reporters had culled from the thick document a handful of disclosures they thought hinted of conflicts of interest, such as the old speculation about my investments with Cerberus. The story also included an unequivocal statement from Jenni Engebretsen, the senior Treasury press person: "Like all employees, Steven Rattner was required to comply with financial conflict of interest rules, including divestitures where needed, and he has done so fully."

My phone and BlackBerry were still buzzing when Ed and I regrouped at Bobby Van's, a steakhouse up the street from Treasury. I was ready to share a couple of stiff drinks. I was hoping we'd get to a quiet discussion about GM, Ed's new role, and the tasks before us. But my cell phone kept ringing as Jenni responded to press inquiries well into the evening. All the major media did stories; all echoed the details that Bloomberg News had chosen. Jenni and I were struck by the incongruity: here we were in the midst of this huge auto crisis and the reporters covering it were more interested in my finances than in nearly everything else we were doing. To me it exemplified everything that was wrong with the media: gossip trumps substance.

I'd picked Bobby Van's on the theory that Ed, being Texan, would want red meat. But he had just spent several days on a ranch and ordered fish. I kept apologizing about the calls and my resulting inability to focus on our important business at hand. At last they tapered off and we managed to talk. I liked his honesty and self-confidence. With Ed, there was no guile. As dinner progressed, it became clear that for Ed—who cared about our country but was too sensible ever to volunteer for a job like mine—stepping into GM was a form of public service. He intended to put an end to the nonstop board meetings and teleconferences of recent years—GM's board would learn to do its business in crisply run, once-a-month events. "A board should have dinner one night, meet the next morning, and be on a plane by 2
P.M.,
" Ed said. We ended the evening agreeing, naively, that this was a realistic approach.

Coincidentally, the way we had laid out the timetable, Chrysler's bankruptcy ended up paving the way for GM's. Chrysler's sales held up far better than we expected, and would end up higher in May than they had been in April. People were still buying Chryslers, perhaps encouraged by the warranty guarantees and other safeguards we'd put in place. Meanwhile, the public seemed to be getting used to the idea that bankruptcy doesn't necessarily mean total ruin. And I felt far more comfortable that we had our arms around things than I had two months earlier, when I'd felt I was looking over the edge of a cliff.

May was consumed with the same complex prebankruptcy stakeholder discussions as we'd had with Chrysler—to my relief, GM's were less operatic. Instead of Sergio to contend with, we had the phlegmatic Fritz. Instead of Jimmy Lee, we had thousands of faceless bondholders represented by two coolly professional firms, the investment bank Houlihan Lokey and the law firm of Paul, Weiss, Rifkind, Wharton & Garrison.

But the Chrysler precedent also made it hard to change aspects of the process we hadn't liked. I felt a little bit of buyer's remorse about the Chrysler-UAW contract. While it was a vast improvement over previous agreements, I wasn't sure we had used our once-in-a-lifetime opportunity to full advantage. I respected Ron Gettelfinger's determination to protect workers' interests. And I sympathized. My many op-ed pieces over the years had warned that income inequality in America was an enormously important moral issue and that real wages for blue-collar workers had been declining, even in years of prosperity. At the same time, if these automakers couldn't be made competitive, we would have no jobs, an outcome much worse, to my mind, than jobs that were lower paid.

So I told Harry—who scarcely needed encouragement—that when it came to GM, we should be tougher on the UAW. But this just showed our ignorance of how organized labor works. Like the unions in many industries, the UAW used "pattern bargaining" in dealing with Detroit's Big Three. Once a contract was resolved with one automaker, the other two would generally accept the main provisions. Especially on wages and work rules and other matters affecting active workers, the concessions we had achieved with Chrysler became not only the floor but also the ceiling for most of what we could accomplish with GM.

Retiree medical benefits, paid through the
VEBA,
were a different story. In his crusade to cut GM's debt, Harry decided we should persuade the UAW to convert its entire $20 billion claim into GM stock—by which he meant not relatively safe and interest-bearing preferred stock, but mostly common shares. His view was that this would fully align the retirees (and the workers as future retirees) with the health of the company and help create a better partnership between management and labor than had existed in the past. It would also result in a far better balance sheet for GM, increasing the probability of success—a win-win proposition. (He was so excited about his idea that at one point he started explaining the difference between preferred and common stock to me!)

This would be a much more dramatic change than what had been negotiated with the Chrysler
VEBA,
where half the claim was converted to stock. Fritz, who was all for union concessions, thought the idea ludicrous and told Harry so—in essence, we were asking the union to bet its retirees' ability to pay their family doctor bills on the success of Shiny New GM. But Harry got Fritz and Ron Bloom to agree to give it a try.

Harry spent many hours pitching Lazard, the UAW's adviser, on the future value of the stock. Then, on May 19, the two sides faced off across the rectangular table in the Treasury's Griswald Library—Fritz and Ron Gettelfinger seated directly opposite each other; Ron Bloom down at one end, flanked by Harry and Sadiq; the UAW advisers at the other end. Despite his skepticism, Fritz delivered the proposal with seeming enthusiasm. In lieu of its $20 billion claim, the
VEBA
would own 15 percent of GM, plus $5 billion in preferred stock. In other words, three-quarters of the health-fund claim would be converted to common.

Gettelfinger barely said a word. He let the Lazard people respond. They rejected the offer, asking for a $10 billion note (similar to what we had agreed to with Chrysler) plus much more common equity. The gap was huge and the meeting had to end—Fritz and Gettelfinger were due at the White House for Obama's announcement of new national fuel-economy standards. But while Fritz hustled out of the room, Gettelfinger lingered until someone tapped him on the shoulder to remind him to get to the White House.

"The President can wait," he said through clenched teeth, obviously unhappy about all the UAW was being asked to do by an ostensibly friendly administration.

The deal he was being offered was worse than what the UAW and GM had discussed just a few months earlier, during the preparation of the viability plan and before Team Auto had set to work. Especially galling to Gettelfinger was that the UAW had been instrumental in helping Obama win key states, like Ohio and Indiana, that had large concentrations of union members and retirees. It chafed to hear Ron Bloom, on occasion, preface an offer with a pompous phrase like "I am empowered by President Obama to..." To Gettelfinger, Bloom was a Johnny-come-lately to the Obama effort, and yet here he was telling the UAW on the President's behalf what it must accept or do.

Ron, Harry, and Sadiq went down to the basement and crowded into Sadiq's cubicle to figure out the next step. The tension between our two alpha males was palpable. Harry felt that Ron was not sufficiently frugal with taxpayer dollars; Ron felt that Harry was utterly unrealistic about what the UAW could possibly accept. Finally, they agreed to propose the same 15 percent of Shiny New GM and $5 billion of preferred, but also to throw in a note for $2.5 billion.

The negotiation resumed late that night with a smaller group at the Washington office of our law firm, Cadwalader. Periodically, one of the principals would emerge to confer with aides before diving back in. Sadiq, who was set up near the conference room, crunched new scenarios on his laptop whenever Harry asked. Bloom found Harry's approach amusing; Harry would parse Sadiq's numbers as if they were the Dead Sea scrolls. To Ron, no analysis could definitively say what was fair or unfair; it came down to where a deal could be negotiated and whether it felt satisfactory. Notwithstanding their different methodologies, Ron and Harry gradually sweetened our offer. Gettelfinger reduced his demands, but hated the idea of a predominantly common-stock deal. At the start of the talks, Gettelfinger's hope had been to get as much cash as possible for the union's health trust—he needed the certainty of payments from GM or the government to keep paying out billions in health care benefits to his more than 330,000 GM retirees and surviving spouses in the U.S. He had no wish to own stock in GM. If the UAW had to accept an equity stake to get the deal done, he wanted it to be temporary, with the government agreeing to buy back the shares soon. But that wasn't going to happen. Bloom and GM dug in their heels.

Harry tried to position himself in the role of truth teller to both GM and the UAW. He called out Fritz on a profit-sharing formula that GM had rigged, Harry felt, to limit payouts to UAW members. He also told GM to quit exaggerating the compensation gap between UAW workers and those at Toyota, Honda, and Nissan plants. Meanwhile, he chastised the union for its notorious Viagra payments and the Jobs Bank, telling Gettelfinger, "You guys make yourselves look bad with that stuff."

Gettelfinger would have none of Harry. At one point, when Harry mentioned that his mother had worked in textile mills, Gettelfinger interrupted and snapped, "Harry, I don't want to hear your stories about factories." When Harry held forth on how the auto industry was broken and needed to be fixed, Gettelfinger asked sarcastically, "Excuse me, what is your name again?"