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GM management had 'lack of financial discipline,' Rattner says

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GM management had 'lack of financial discipline,' Rattner says

Former car czar says the old GM board was 'utterly docile'

NEIL ROLAND

AUTOMOTIVE NEWS

OCTOBER 21, 2009 - 10:46 AM ET

UPDATED: 10/21/09 4:22 P.M. ET

WASHINGTON -- Former General Motors CEO Rick Wagoner and his aides were “sequestered” and “insular,” presided over a “lack of financial discipline” at the company and blamed everything but their own management for the company's demise, the former chief of the Obama administration's auto task force said.

In a speech today, Steven Rattner said Wagoner, who also was GM chairman, was subject to little oversight by the GM board, which was “utterly docile in the face of looming disaster.”

“At GM's Renaissance Center headquarters, the top brass was sequestered on the uppermost floor, behind locked and guarded glass doors,” Rattner told a National Press Club audience. “Executives housed on that floor had elevator cards that allowed them to descend directly to their private garage without mixing with lower-ranking colleagues.

“In that insular world, Chairman and CEO Rick Wagoner and his team appeared to believe that virtually all their problems resulted from some combination of the financial crisis, oil prices, the yen-dollar exchange rate and the UAW,” Rattner said.

He said that virtually all senior GM executives “came up through the ranks.”

A ‘decent' guy

At the same time, Rattner added, Wagoner is “a decent, honorable, hard-working, intelligent, well-meaning guy.”

In a first-person account today on Fortune magazine's Web site, Rattner also said Wagoner set a tone of “friendly arrogance” that pervaded the company. GM had “perhaps the weakest finance operation any of us had ever seen in a major company,” he said.

Rattner's blunt public comments about Wagoner's management and management style are a departure from what Obama administration officials have said about the former GM executive. When Wagoner stepped down in March under pressure from the administration, officials were much more guarded in their remarks.

Wagoner did not immediately respond to an e-mail today asking for his comment. GM spokesman Tom Wilkinson said, “From what we understand, he is not responding.”

Wagoner was CEO from June 2000 to March 2009 and chairman from May 2003 to March 2009.

Responding to criticism

Rattner, an investment banker who headed the Obama task force from February to July, also defended the administration's role in securing Wagoner's departure.

"It seemed obvious that any CEO who had burned through $44 billion of cash in 15 months should not continue,” he said.

Critics have said the government was heavy-handed.

At the time of Wagoner's ouster, Rep. Thaddeus McCotter, R-Mich., said the executive was a victim of a double standard.

"Mr. Wagoner has been asked to resign as a political offering despite his having led GM's painful restructuring to date,” McCotter said. “Mr. Wagoner has honorably resigned for the sake of his company's working families.”

Sen. Bob Corker, R-Tenn., also criticized the administration over Wagoner's firing.

“They had to look like they were doing something,” Corker said at the time. “And then now, in essence, they have taken over these companies.”

Rattner said Wagoner had also cautioned him against hiring an outsider at GM to replace him, citing the example of Ford Motor Co.

"'Alan Mulally called me with questions every day for two weeks after he got to Ford,'" Rattner quoted Wagoner as saying.

Wagoner formally retired in August with a package worth $8.6 million.

Today at the National Press Club, Rattner said GM's finances were something he felt particularly qualified to assess.

FORTUNE MAGAZINE: Steven Rattner: Why we had to get rid of GM's CEO

Never heard ‘shareholder value'

“We saw no indication of the finance staff pushing back on the operating divisions to achieve better results, as is customary,” he said. “Analyses seemed engineered to support preordained conclusions. Symbolically, we never heard the words ‘shareholder value.' ”

He cited as an example a task force request for GM financial results that “took forever.”

In addition, GM “never really got anything” from its spinoff of Delphi Corp., the large parts manufacturer that was in bankruptcy, Rattner said. The spinoff led to “no fundamental restructuring,” he added.

Rattner also was critical of Chrysler's management, but less pointed in his remarks.

The company was “larded up with debt, hollowed out by years of mismanagement and operating as just a North American player,” he said.

He added that Chrysler didn't have a single car that was recommended by Consumer Reports magazine.

In his Fortune article, Rattner said that under the private equity firm Cerberus Capital Management, Chrysler “never had a chance.”

Rattner also defended the administration's injection of working capital into GM and Chrysler and its shepherding of the companies through bankruptcy.

“With financial markets still frozen, both would have unquestionably run out of cash quickly, slid into bankruptcy, closed their doors and liquidated,” he said.

“That would have meant the elimination of more than two-thirds of American-owned auto manufacturing capability, cost more than a million jobs in the short run, dramatically deepened and prolonged the nationwide recession and pushed unemployment rates in several states above 20 percent.”

Reuters contributed to this report

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The auto bailout: How we did it:

(Fortune Magazine) -- Without any experience in automaking or government, Steven Rattner left his Wall Street perch to wade into the largest restructuring in American history. The scale and speed of the rescue raised many questions, inspiring Rattner to write this account of a defining moment in capitalism.

Rattner, who led the group that did the hands-on work, believes passionately that the decision to intervene represented not "creeping socialism," as some feared, but a critical part of the effort to prevent economic collapse. Here is the full Fortune exclusive, where Rattner gives a behind-the-scenes look at the President's decision to impose tough medicine, the ouster of GM's Rick Wagoner, and the revolt of Chrysler lenders that forced bankruptcy. Rattner's account:

Reporting for my first day of work on the auto task force, I lingered outside a guard shack on Pennsylvania Avenue. My clearance into the fortress-like Treasury building was adrift in a bureaucratic haze, a fitting example of the chaotic start of my government service.

The reaction to my likely appointment had been as chilly as that February morning in the weeks since it had leaked. Few agreed that I was the right guy for the job. Some Michigan legislators -- of my own party -- questioned my knowledge about manufacturing in general and autos in particular. They were understandably suspicious about a Wall Street guy who hadn't even been to Detroit in three decades. Before long, the press piled on (Fortune.com catalogued the cars I own and pointed out that only one was American-made).

More at link:

http://money.cnn.com/2009/10/21/autos/auto...rtune/index.htm

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The real sad part is, I believe it. I never said I was a fan of any of this, I just hope GM is better off for it. The company was a mess but I just wish they could have done more to solve the problem themselfs. Anyways very interesting read.

Either way one good thing has come out of this and that was hiring Big Ed, I think he will be really good for the company. I would actually give him Fritz's job or better yet Lutz.

Edited by gm4life
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Good story and while I don't think most of the rational is misplaced now they are making omelettes. Looking at the situation they were in from an objective standpoint it is disingenuous to say decisions being made now are a solely result of "better" leadership and not circumstance. I think in time history will see this as the evolution of not only a company but of a society.

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It was an interesting read for sure.

It really is unbelievable how poorly managed and unmotivated GM had become. Couldn't they see that they were getting their proverbial clock cleaned in the market place by the Japanese? (and the Germans too - look at how BMW does against Cadillac in the market place). In some ways, I kind of wonder if they even cared.

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GM having problems is not really anything new. I don't think anyone who knows about the bailout really things every thing was great at GM.

The question I have where is the wisdom of someone overseeing GM coming out with this when they are hoping to trun GM around. I would think they would want to keep a positive spin and if any one was to spill the beans it should come from GM coming clean not someone hired by DC. It is a public preception thing as I see it.

Better for the sinner to confess the sins in the eye of Joe public.

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It was an interesting read for sure.

It really is unbelievable how poorly managed and unmotivated GM had become. Couldn't they see that they were getting their proverbial clock cleaned in the market place by the Japanese? (and the Germans too - look at how BMW does against Cadillac in the market place). In some ways, I kind of wonder if they even cared.

<Rick Wagoner looking out the windows of his Cadillac limo as it rushes towards Oakland County from the vast Renaissance Center up I-75...>

"Man there are alot of GM cars on the roads.....we must be doing A-Okay...!"

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"It seemed obvious that any CEO who had burned through $44 billion of cash in 15 months should not continue,” he said.

Yet it wasn't even clear to some to the armchair CEOs we have running around C&G.

"'Alan Mulally called me with questions every day for two weeks after he got to Ford,'" Rattner quoted Wagoner as saying.

It seems as if most of those conversations went like this:

Alan: Rick, what would you do in this situation?

Rick: Well...I'd do blah blah blah.

Alan: Thanks, I'll do the exact opposite.

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Alan: Rick, what would you do in this situation?

Rick: Well...I'd do blah blah blah.

Alan: Thanks, I'll do the exact opposite.

LOL......well put.....

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Yet it wasn't even clear to some to the armchair CEOs we have running around C&G.

It seems as if most of those conversations went like this:

Alan: Rick, what would you do in this situation?

Rick: Well...I'd do blah blah blah.

Alan: Thanks, I'll do the exact opposite.

They should have declared bankruptcy and crushed the unions in the mid 80's. Maybe then they wouldn't have had the need to ask their Uncle for some help.

And the BOD should have fired themselves as well.

Yes and as for Ford, refer to the above, and the post above this.

But again, based on these sorts of responces from people who come off as knowledgeable this article achieved its intent, and I don't necessarily think that is a bad thing.

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From a product standpoint, Ford is in a much stronger position than GM overall.

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>>"Former General Motors CEO Rick Wagoner and his aides were “sequestered” and “insular,” presided over a “lack of financial discipline” at the company and blamed everything but their own management for the company's demise,"<<

Wait, is this descibing GM or the US Government ???

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Rattner said Wagoner had also cautioned him against hiring an outsider at GM to replace him, citing the example of Ford Motor Co.

"'Alan Mulally called me with questions every day for two weeks after he got to Ford,'" Rattner quoted Wagoner as saying.

I lol'd at this.

Alan Mulally is kicking ass at Ford. Wagoner is.........yah.

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Good story and while I don't think most of the rational is misplaced now they are making omelettes. Looking at the situation they were in from an objective standpoint it is disingenuous to say decisions being made now are a solely result of "better" leadership and not circumstance. I think in time history will see this as the evolution of not only a company but of a society.

Well put. Hindsight is always 20-20. It will be interesting to look back on 2009, say, in 10 years time. Nobody could have imagined the size of the stock market implosion of 2008 and the ensuing real estate collapse. (There are a lot of players out there who should be in jail, but never will be.) Is there a single business out there that could sustain a 58% drop in business (the size of the American auto market collapse) and come out unscathed? The only reason Japan Inc is hanging on is because a) they don't report their losses here (so the media largely ignores them) and b) they have the Japanese government and market to subsidize/insulate them.

I am no Wagoner apologist, but his resume would have looked much different had the auto market not collapsed over the past 18 months - and collapse it has! However, having said that, GM's bankrupty may have been inevitable, given the degree of intrangisence of the UAW and other stakeholders in the company.

Having run my own business for 11 years (and not nearly on the scale of General Motors!), I can safely say that it is easier to plan for growth or even stagnation, but the long period of decline that the American auto industry has faced since the early '80s, after the unerring attacks of Japan Inc are virtually unprecedented - no, wait , except for the television/electronics industry, which Japan Inc was successful in railroading out of North America. Oh, and the appliance industry, which is all in Asia. Oh, and the shipping industry which is in Asia, South Asia and Eastern Europe. Oh, and the heavy machinery busines which is all but extinct in North America.

Bah, never mind!

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From a product standpoint, Ford is in a much stronger position than GM overall.

Perception maybe, but I don't see how their products are much better.

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