Rattner: TARP, GM Management Changes Worked


Financier Steven Rattner, former adviser to the President's Task Force on the Auto Industry, was introduced as Obama's former "car czar" to the assembled members of the International Motor Press Association in New York on Thursday.  

But he made it clear off the bat that he bridles at the "czar" title. "If my great-grandfather, who was a fur peddler in Moscow, heard that his great-grandson was a czar, he'd roll over in his grave."

Rattner, who helped engineer the Treasury Department's loans to General Motors and Chrysler under the Troubled Asset Relief Program (TARP) might also dislike its dictatorial implications. He prefers to think of himself as mostly a good investor whose management changes led to a better balance sheet at GM -- and therefore a good ROI, potentially, for the U.S. government.



The timing was good. Thursday was two years to the day in which President Barack Obama was inaugurated, and Rattner says the day serves as a milestone for both the president's larger economic policies and the success of TARP.

"We are in the midst of reasonable recovery. And we are in the midst of an auto recovery. I don't think that would have been possible without both the Bush administration (which signed TARP into law) and the Obama administration, which implemented it. I don't think without TARP we would have been able to make these statements: I think it saved our financial system, the auto industry and our country."

The government ended up investing $82 billion in General Motors and Chrysler as part of the program, and Rattner says if the Fed were to sell its remaining 25% stake in the companies today, it would recover 90% of its investment. But he is bullish.

"I think that with government ownership now at 25%, the government can be a little patient and allow GM to realize more of its potential. We have gotten about $72 billion out of it -- about 90% of our investment. But I think government ownership in GM can be a waiting game, and the government can enjoy the fruits of its labor, so to speak."

One very obvious form of direct control that Rattner and the Fed did exercise was management change at the top of GM's hierarchy. He says that was an emergency procedure. "[Former GM CEO] Rick Wagoner is a thoroughly decent, honorable, smart and hardworking CEO, and I truly believe he put his heart and soul into this company for over 25 years," said Rattner.

"But a problem investors face is, who are you backing with your investment? Who is the management team you are putting your money behind? In my view, the jockey is as important as the horse, and a private-equity investor wants to know if the horse is ready to run and the jockey is ready to race."

Rattner said jaws dropped when GM management showed up in former Treasury Secretary Henry Paulson's office to say the company had lost $30 billion. "Yes, there was a credit crisis, a gasoline crisis. But to our view, having gotten so close to the edge of the cliff without knowing it and not knowing how to get out of it didn't give us confidence.

"The board of directors was utterly derelict in its duty. The idea that a company had no plans when they say the company will run out of money in two weeks was mind-boggling. We were told that Wagoner banned the use of the word 'bankruptcy' in the executive suite, but that's a lack of responsibility in anticipating these problems and heading them off."

Rattner said Chrysler's big problem was a lack of viable and fuel-efficient products in its development pipeline, and that the company was not global. "And it had been hollowed out by Daimler and then Cerberus, so we concluded that the only way to save it was in combination with a stronger company. Fiat was obvious -- it was a case of a superior jockey to ride that horse," he said.

The management changes at GM and Chrysler and structural downsizing at GM have helped the company to drop from $120 billion in liability to $55 billion, argues Rattner. "The old General Motors could only make money if the industry sold 16 million vehicles a year in the U.S. The company's restructuring brought a break-even down to 10 or 11 million vehicles. Now you can see that in a 12-million-vehicle-per-year environment, GM is making very good money," he said.

He predicts the market will return to 15 million new cars per year relatively quickly because at least that number will need to be sold as replacements. "Sales were below scrappage for the first time in history [during the recession], so as long as economy stays relatively healthy we will be back at 15, 16, or even 17 million cars per year."

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