Former Car Czar Rattner sounds off on GM and Chrysler

October 23, 9:29 AMMonroe County Liberal ExaminerPatrick Demkowski

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Steven Rattner, former Car Czar for the Obama Administration, defended the GM and Chrysler bailouts and discussed why GM's CEO Rick Wagoner had to go in a Fortune interview on Oct. 21 . Rattner's words give quite the account of the politics and the process of the auto bailout.

Some didn't like Rattner because he was an outsider without automotive or manufacturing experience. But even though the financier lacked Detroit street creds, much of what he said as czar was true.

“We imagined that the collapse of the automakers could devastate the Midwest beyond imagination,” he warned. Even though the bailout remains unpopular with much of the public, he stands by the fact that it was needed. Had our car manufacturers failed, the ripple effect in an already terrible economy would have been devastating. Millions of jobs were at stake. Entire cities and communities completely depend on the auto industry. If the companies collapsed, those municipalities would have imploded with them, due to their citizens being collateral damage. The cost to government bailing GM and Chrysler becomes cheap in comparison.

Rattner rightly sounded off against the management of GM and Chrysler. He called Rick Wagoner, the former CEO of GM, a likable and knowledgeable guy, but set a tone of “friendly arrogance”. The company had been blowing through a great amount of cash in a short amount of time with no real no plan in place. Rick Wagoner needed to go.

Rattner said, “Certainly Rick and his team seemed to believe that virtually all of their problems could be laid at the feet of some combination of the financial crisis, oil prices, the yen-dollar exchange rate, and the UAW.” Interesting and a bit insane that management felt blaming all their problems on others would solve things, instead of looking in and addressing the real problems.

Rattner hit the nail on the head with Chrysler, as well, “Badly run after Daimler bought it in 1998, Chrysler had been sold nine years later at the peak of private equity mania to Cerberus Capital Management. Larded up with debt, hollowed out by years of mismanagement, Chrysler under Cerberus never had a chance. We marveled, for example, that Chrysler did not have a single car that was recommended by Consumer Reports.” The company had been mishandled for such a long period of time and had many inferior products that simply couldn't compete in the market. The debate he described on if to save Chrysler or not, is certainly an interesting one. The auto industry often suffers from over capacity, if it were to go away, there would certainly be a plethora of other better built cars, people could still buy, and the government could concentrate on keeping GM (and maybe Ford) afloat. However, the effect of all those people loosing their jobs, could have been costly and thus ultimately the task force decided to Chrysler needed to be saved.

While it is unsure how much of the bailout money the taxpayers will get back (and this is only one person's view of how things happened), the alternative of letting both companies fail would have been much worse of an outcome and the Rattner's thoughts are interesting and sure to spark debate.