Rattner's Take
10/26/09 16:02
I recently attended the Auto finance Summit held at Red Rock Hotel and Casino in Las Vegas. One of the high points was an address to attendees by Rick Wade, a member of the Automotive Task Force. During his address he never specifically mentioned the decision to cut dealers, but his tone indicated that he thought everyone thought that dealer terminations were necessary to make GM and Chrysler viable. He related interesting anecdotes about research journalists did into what kind of vehicles task force members drove. He was “accused” of driving a 1985 Chevrolet Cavalier and assured us that he had long since gotten rid of that car before joining the Task Force. He came across as an enthusiastic, bright, and well intentioned person who was placed in a position, with the other members of the Task Force, where important decisions had to be made quickly. He was quite pleased, as am I, that GM and Chrysler have been, at least temporarily, “saved.” Before being called to serve, Mr. Wade was certainly an auto industry outsider, for better or for worse.
But the real bombshell has been Steve Rattner’s recent article in Fortune magazine where he reveals all sorts of inside information, all very interesting. Mr. Rattner is the now resigned head of the Automotive Task Force during the Chrysler and GM bankruptcies, the REAL “car czar.” Some of the inside information he reveals probably should have stayed “inside” for a while out of common courtesy and discretion. In particular, he shares his personal views on GM management, and Rick Wagoner in particular, in a particularly caustic manner. He reveals the content of private conversations. In his “tell all” piece he also acknowledges the challenge of dealing with the NY attorney general’s investigation of his former firm, Quadrangle, while simultaneously heading up the “Team Auto,” as they called themselves. He freely admits that he and his fellow task force members knew little of the auto business. It is true they had no real precedent to rely on and faced a critical time schedule. It made me wonder why he was selected to the post in the first place. He must not be expecting to be considered for any important positions in the future as it is unlikely that anyone would speak candidly to him knowing his penchant for being less than discrete.
The Bush administration had “bridged” GM and Chrysler over to the Obama administration with an injection of 17.4 billion in TARP funds in late December 2008. The decision to use a “Section 363" bankruptcy strategy to accomplish a quick “cleansing” of liabilities through Chapter 11 has at least temporarily saved the two companies and hundreds of thousands of jobs. For this, I commend Mr. Rattner and Team Auto. If things go as planned, GM will IPO in the next couple of years and buy out the government’s stock holdings. Chrysler’s situation is much more fragile and depends on Fiat more than anyone should be comfortable with. But GM and Chrysler were saved at a time when their liquidation could have touched off a catastrophic chain of events in the auto industry and the overall economy.
But who made the decision to terminate dealers? I’m not talking about shutting down Pontiac and Saturn or selling Saab and Hummer. A business case can be made to support these decisions. I’m talking about decimated the Cadillac dealer network and terminating thousands of viable GM franchises across the country. I’m talking about terminating 789 or so Chrysler, Dodge, and Jeep franchises.
We now have a story in Automotive News on Jim Press, Chrysler’s now discredited and terminated co-president, that itemizes many apparent contradictions in Mr. Press’ career. I distinctly recall Mr. Press and Fritz Henderson during the Senate committee hearings itemizing the “savings” they would realize by terminating dealers. I didn’t hear anything that smacked of the truth. It is now disclosed that Mr. Press had his own private reservations about terminating dealers. Mark LaNeve, the recently deposed head of GM sales, has stated publicly that he is worried about GM’s lack of dealer coverage and its negative impact on sales and market penetration. He expressed concern about GM making orphans of 900,000 GM owners. Then there is the quote from Joe Eberhardt, Chrysler Group’s past senior vice president for sales and marketing. “When a company loses a dealer, its overhead costs stay the same and--at least in the short term--it loses a few hundred car sales. There's no immediate payback." Carl Woodward, long time CPA serving auto dealers, also disputes any claims of net savings to auto manufacturers by terminating dealers. In his 6000 word article for Fortune, Mr. Rattner took no credit for the dealer terminations. I wonder why.