Chrysler: The View from the White House

Steven Rattner’s first-hand account of the automaker bailout is self-serving (of course), but still very much worth reading. He’s very much the office-bound technocrat: “we recognized the importance of a trip to Detroit,” he writes at one point, “so in March, several of us made the journey”. Well, yes, that would probably make sense.

At the same time, this financier understands clearly and intuitively that in bankruptcy proceedings, seniority of creditors doesn’t matter:

The lenders were particularly aggrieved that the UAW’s health-care trust, which ranked below the secured creditors, was slated to exchange an $8 billion existing claim for $4.6 billion in notes and 55% of the equity in the reorganized company. While arguably close to a 50% haircut, it was a higher-percentage recovery than we were offering the banks.

The lenders felt that this represented an ideological decision by the Obama administration to tilt in favor of labor and against capital. That was simply not the case. At no time during our months of work did the White House ever ask us to favor or punish any stakeholder.

Many other unsecured creditors — notably, suppliers and consumers holding warranties — actually received 100¢ on the dollar. The fact was, Chrysler had to have workers, suppliers, and customers to succeed and therefore needed to give them more than called for by their rank in the capital structure…

The outcome of the Chrysler restructuring had virtually nothing to do with the heavy hand of government and everything to do with the fact that Treasury was the reluctant investor of last resort.

Every stakeholder did better under our plan than they would have in the alternative: a liquidation, in which the lenders would have gotten far less than the $2 billion they wound up with.

Rattner’s job was to create a viable company, not to maximize recovery for bondholders. If those creditors wanted to put their own new money into Chrysler, and run it themselves, they were more than welcome to. But even the government came very close to simply letting Chrysler fail, until it worked out the magnitude of the knock-on effects on jobs at dealers and suppliers. No one else would put a penny in, and the fact that TARP money was found for the automakers meant that hundreds of thousands of jobs, and billions of dollars, were saved. The creditors really were lucky to get what they got.

Comments

[flstsphil:]

The conclusion that everyone ended up better with Rattners solution is wrong. The 789 dealers killed ended up far worse than they would have in a normal bankruptcy. In a normal bankruptcy they would still be performing service work and selling parts along with those dealers that were saved.

Oct 22 10:45 AM

[epeon:]

Well, the conclusion that everyone ended up better with Rattner's solution is obviously wrong. I am a taxpayer. Did I end up better? I think not, I got stuck with the tab for all the job Rattner doled out.

Oct 22 11:38 AM

[niteshift:]

Well taxpayer this had happen before President Ronald Reagan did a bail out for Chrysler in the Late 70's and early 80's. Not only did they pay it back they paid it off 5yrs early. With all the interest including the 5yrs they didn't have to pay. So lets hope they do it again!! And lets hope Management wakes up this time, and puts out some cars and trucks made with quality and not push them out just cause of the numbers. Hopefully they control the waist, the bonus's to all. Upper Management should listen to there Foreman's on the floor. Cause they are there eyes and ears, since upper Management (plant Manager ) is never there. And the workers should not be worried if they or going to get fired if they bring up a problem to there Forman and his boss finds out. Such a power struggle between the different groups!! Why cause One wears a tie and the other wears coveralls.

Oct 23 03:18 AM

[niteshift:]

Oh and i also pay taxes as well


On Oct 23 03:18 AM niteshift wrote:

> Well taxpayer this had happen before President Ronald Reagan did
> a bail out for Chrysler in the Late 70's and early 80's. Not only
> did they pay it back they paid it off 5yrs early. With all the interest
> including the 5yrs they didn't have to pay. So lets hope they do
> it again!! And lets hope Management wakes up this time, and puts
> out some cars and trucks made with quality and not push them out
> just cause of the numbers. Hopefully they control the waist, the
> bonus's to all. Upper Management should listen to there Foreman's
> on the floor. Cause they are there eyes and ears, since upper Management
> (plant Manager ) is never there. And the workers should not be worried
> if they or going to get fired if they bring up a problem to there
> Forman and his boss finds out. Such a power struggle between the
> different groups!! Why cause One wears a tie and the other wears
> coveralls.

Oct 23 03:19 AM

[Sleepwriter:]

Reagan was not President until 1981. The Chrysler bailout bill was signed in 1979 and was only a loan guarantee. It required PRIVATE financing. Reagan honored the deal, but it was not a loan nor was it government ownership of a private sector business.


On Oct 23 03:18 AM niteshift wrote:

> Well taxpayer this had happen before President Ronald Reagan did
> a bail out for Chrysler in the Late 70's and early 80's. Not only
> did they pay it back they paid it off 5yrs early. With all the interest
> including the 5yrs they didn't have to pay. So lets hope they do
> it again!! And lets hope Management wakes up this time, and puts
> out some cars and trucks made with quality and not push them out
> just cause of the numbers. Hopefully they control the waist, the
> bonus's to all. Upper Management should listen to there Foreman's
> on the floor. Cause they are there eyes and ears, since upper Management
> (plant Manager ) is never there. And the workers should not be worried
> if they or going to get fired if they bring up a problem to there
> Forman and his boss finds out. Such a power struggle between the
> different groups!! Why cause One wears a tie and the other wears
> coveralls.

Nov 17 07:01 PM