"WHY EVEN SAVE GM?" he demanded provocatively, interrupting the conversation. Other people had asked the question in the past, but it was astonishing coming from Rahm Emanuel. It certainly wasn't the challenge we'd anticipated. We had gone into the meeting expecting the White House to oppose letting even Chrysler go, but Emanuel had put GM in play, at least rhetorically.
The viability reports had not shown any reason for hope. In fact, the situation had gotten worse. GM and Chrysler now said that they needed more money—another $14 billion right away, to be precise. This meeting with Emanuel had come together as Team Auto—the name we had chosen for ourselves to minimize talk of "czars"—continued to face the scary conundrum of bankruptcy. We would almost certainly need that process to achieve fundamental restructurings, but we feared that the medicine was so strong that it might kill the patients we were trying to cure. There was also the question of whether Obama, so publicly supportive of the automakers and sincerely committed to saving the industry, would actually allow a bankruptcy.
The White House chief of staff occupies an unusually elegant office by West Wing standards. (Rahm was known to brag that his first-floor office was eight square feet larger than the Vice President's, and closer to the Oval.) We approached its splendor assuming that Rahm would attack, in his trademark slash-and-burn style, the conclusion on which we were approaching consensus: from a business perspective, it seemed more and more doubtful that Chrysler should be allowed to continue as an independent entity.
It was when we tentatively aired the notion about Chrysler that Rahm turned and uttered his shocker: "Why even save GM?" Seated to his right, David Axelrod, the President's principal political adviser, pulled out polling results and reeled off statistics showing how much the public hated bailouts.
Ron Bloom was the first to shake off his surprise and make a counterargument. He reminded them of the tens of thousands of autoworkers' jobs at stake. But that didn't deter Rahm. "Fuck the UAW," he growled.
From the opposite end of the table, Tim Geithner pushed back, drawing on his experience with the fickle nature of public opinion. I had seen this myself, most starkly with Lehman Brothers. Right up until Lehman declared bankruptcy, public opinion, including opinion on Wall Street, had overwhelmingly favored letting the firm go down. But in the ensuing chaos, the consensus had shifted almost overnight, and the government was believed these days to have made a terrible mistake by acquiescing in Lehman's collapse.
I was sitting with my back to Rahm's door. Suddenly I saw others around the table stiffen. I turned to look behind me. The President had just walked in. Having read somewhere that everyone is supposed to stand when the President enters the room, I leaped to my feet—only to notice that no one else had. "Welcome, Steve," Obama said, shaking my hand. "Sit down." He asked Rahm to step into the hall with him for moment, and with that, my first encounter with Barack Obama as President ended as abruptly as it began. (I later learned that the President likes to roam the first-floor halls when he has a question or request for a senior aide.)
In my limited contacts with Rahm and by osmosis from others, I knew that the chief of staff ruled by a mixture of respect and fear. Policy types didn't rush to him for analytical insights on their latest idea, but no one doubted his political instincts, his toughness, or his work ethic. He ran a tight ship, with no tolerance for the infighting that often characterizes a White House staff. Nor did he accept anything less than perfection from his subordinates. As a result, there was not a lot of love from Rahm. The old Washington saying "If you want a friend, buy a dog" seemed meant for those under his supervision. And Rahm never hesitated to seize command, as he did after Tim's rocky start as Treasury secretary—Rahm had stepped in and effectively started supervising Tim on a daily basis. Such aggressiveness is fine when all is going well, but it breeds resentment that can turn into sniping when the tide recedes, as it did briefly for Rahm in early 2010 when health care re-form bogged down.
He subsided as the conversation resumed, and it struck me that, despite the fireworks, our doubts were being laid to rest. We'd arrived wondering whether the White House would be willing to take a firm stance with the automakers and do the right thing with the taxpayers' investment, however risky or politically painful it might turn out to be. We left feeling newly confident that, at least if Rahm Emanuel had anything to say about it, the President would stand behind our tough approach.
The meeting had one other memorable moment. We had come armed with maps showing Chrysler's major facilities and listing the members of Congress in whose districts they sat. Rahm zoomed in on Kokomo, Indiana, one of Chrysler's most important locations. "Dan Burton is not the congressman from Kokomo, Joe Donnelly is," he declared. The chief of staff's encyclopedic knowledge of congressional districts dazzled all of us except Harry. Sitting on the couch on the far side of the office, just two days into the job, his heart sank at the thought of our having made a mistake. He sent a BlackBerry message to our advisers at Rothschild, who had prepared the chart, to find out how this could have happened. He was relieved by the response: Kokomo turned out to be split between two representatives, and the plants were, in fact, in Dan Burton's district. As the meeting adjourned, Harry sidled up to the chief of staff and corrected him. "That may be," Rahm replied, "but the workers live in Joe Donnelly's district."
That still left the question of how far the auto industry bailout should go. "We're already in Vietnam," Larry said in a separate meeting, referring to the all but certain decision to provide more aid to the automakers. "I can imagine doing something in Cambodia." By that he meant indirectly helping a few key suppliers, the equivalent of fighting from Vietnam and not sending ground troops across the border. But there he drew the line: "There's no way we're going into Laos." He wasn't about to commit the government to a full-scale invasion that involved bailing out the entire supply chain.
By now I'd learned more about auto suppliers than I'd ever imagined I would, including the central fact that they are mutually dependent on and firmly enmeshed with many other parts of the economy. Tier-one suppliers provide products that can go right into a vehicle, like a wiring harness or a set of disk brakes. Tier-two suppliers generally provide components that comprise such assemblies—say, wires or brake pads. Tier-three suppliers provide raw materials for making the components, like copper or rubber. Except it's more complicated: many suppliers play multiple roles and sell to other industries. A tier-two supplier of wires might also sell to makers of dishwashers, for instance. A company like U.S. Steel might sell steel to both tier-two suppliers for making parts and the automakers themselves, which buy lots of steel directly—for example, to fashion into "top hats," as the outer shell of a car is known.
This vast industrial ecosystem presented a far different challenge from GM and Chrysler. While many suppliers were struggling because of the plunge in auto demand, it was hard to figure out which, if any, to help. We could not deal with each company individually, so we worked instead with their trade group, the Motor and Equipment Manufacturers Association, and an ad hoc coterie of industry experts and participants. We also met with the purchasing executives of the Big Three, who certainly knew more about suppliers than any of us. Midwestern politicians frequently weighed in too, including Michigan Governor Granholm, who e-mailed me in late February to warn about the risk of runaway supplier failures and propose ways that Washington could help. Meanwhile, Todd Snyder and his Rothschild colleagues, who had many clients in the supplier community, regularly fed us horror stories about that part of industrial America.
We had gathered around Larry's government-issue imitation-Chippendale conference table. It was Monday, February 23. Even though for all practical purposes I had been working for six weeks, this was my first official day on the job. I had awakened that morning to a story in the Detroit News, reporting that virtually no member of the task force, including Tim and Larry, drove an American car. Happily, the News had given me credit for owning a Lincoln Town Car, which I had replaced with a Lexus a year or so earlier. By 8:45 A.M., I'd said a teary farewell to my Quadrangle colleagues.
Then I'd spent most of the day in Washington completing the "onboarding" process, including being sworn in. The human resources department had sent word that this needed to occur in a room with an American flag (which nearly every office at Treasury had). I was excited, thinking that Tim himself was going to do the honors. At the appointed time, I presented myself in room 2428 to find two nice ladies from HR, who asked me to face the flag in the corner, raise my right hand, and repeat after them. Nothing is ever quite what you expect. But now, at 5:30 P.M., here I was in Larry's office, an official public servant.
Our meetings with Tim and Larry had already fallen into a routine. Larry sat at one end, next to a safe that was apparently meant for classified documents but showed no sign of use. I would take the seat to his right. Brian Deese would sit across from me, with Ron Bloom to his left. The rest of the other attendees would find seats around the room. Tim would sometimes sit opposite Larry at the other head of the table. But if he was late or didn't want to get dragged too deeply into the discussion, he would choose a different chair, or sometimes Larry's couch, which generally served as the bleachers for those who didn't have speaking roles.
I was intrigued by the dynamic between the two men. Tim had been Larry's protégé throughout the Clinton administration and they got along well. They shared a technocratic approach to issues and problem solving, short on ideology and long on analysis. While Larry's IQ was on its own pedestal, Tim was certainly very smart. Both were devoted public servants with extreme work ethics. They had become close friends and tennis partners.
Yet their personal styles were utterly different. Tim was a man of few words, Larry a man of many. Tim was organized and low-key, although given to occasional bursts of profanity and odd fits of giggling. Larry was more chaotic. He seemed oblivious to time or dress. He would happily immerse himself in a meeting until someone—usually his harried assistant, Bryan Jung—pulled him out. Going to see him made me imagine what it must have been like to have him as a professor. I always felt the need to be fully prepared and careful about everything I said, because no half-baked remark got past Larry. But unlike many of the professors I remembered from college, I looked forward to sessions with Larry because his questions were always incisive and his thoughts stimulating. And I appreciated his directness.
In the Obama administration, the status of the two had been partially reversed, with Tim now in the more lofty perch as Treasury secretary. But he had gotten off to an unfortunate start: his first major address, a long-awaited speech in early February, had been a PR disaster. Intended to unveil the administration's program for restoring credit in America's banks—an ambitious, forward-looking $2 trillion plan—the speech was attacked for being too general and short on convincing detail. Far from reassuring the public, it sent the stock market down nearly 5 percent. Critics denounced Tim. At Treasury, everyone felt terrible for him. Yet the scuttlebutt in the wake of the speech was titillating. His chief spokesperson, Stephanie Cutter, mysteriously disappeared. It was at this point that Rahm Emanuel was said to have taken control of Treasury, dictating everything from Tim's public appearances to his staff picks. When Tim's calendar and phone logs from early 2009 were re-leased, it was surprising how many times a day Tim spoke to Rahm or saw him. Many wondered whether Tim would survive.
Particularly in these difficult early days, Larry tended to take the wheel on auto matters. Tim was preoccupied with bank problems, so Larry's leading on autos seemed like a tacit division of labor. Though Larry didn't bring much knowledge of the subject, he recognized that unlike banks, the federal government was devoid of institutional expertise in autos. Most importantly, he brought his vast intellectual curiosity. Perhaps also because of his stronger personality and the fact that the meetings were mostly in his office, Larry would usually run the sessions. He was not the type to sit quietly through a presentation; we quickly learned to put our most important points first, because sometimes we would not get past the opening pages before Larry jumped in. At this particular meeting, the minute we brought up helping the supplier base, he became agitated. When he heard some of the particulars of our ideas, he was even more unhappy.
The root of Larry's response was his distaste for government intervention in the private sector. Though a good Democrat, he firmly believed in capitalism and free markets. He accepted the necessity of bank rescues and of helping GM and Chrysler, but suspected that the liberal wing of our party wanted more intervention and more bailouts. Luminaries like George Soros and Joseph Stiglitz, for example, advocated nationalizing banks. Larry was determined to draw the line between the "too big to fail" interventions and the pressure to do more. He didn't want us crossing into Laos.
Tim didn't voice an opinion, but we went away understanding that we would have to refine our thinking. A few days later, we got an unexpected intervention. As I would later witness firsthand, Barack Obama was remarkably well informed for a new President with so much on his plate. He mentioned to Larry that he had read about the liquidity problems of the suppliers in the Wall Street Journal. "It would be a shame if at the end of this, we saved the auto companies but weakened out the supply base and shifted the manufacturers' reliance onto foreign suppliers," Obama told Summers.
As I studied the industry in those early weeks, I learned that the car business had gone through a mini-version of the housing bubble. Auto financing had been abundant in the years leading up to the financial crash of 2008—for a brief period in 2006, buyers could borrow more than 100 percent of the cost of a new car! And because as many as 90 percent of consumers finance their new-car purchases, easy loans kept U.S. sales hovering around seventeen million vehicles a year until gas prices spiked. At the same time, substantial gains in quality and reliability were leading consumers to keep cars longer; all told, the number of cars in America rose by nearly 25 percent in the decade ending in 2007 while the driving-age population grew by less than 15 percent. The ratio of cars to licensed drivers, long greater than one-to-one, continued to increase. In 2008, of course, the wheels had come off. The collapse of the financial markets choked credit; rising unemployment and sinking house prices sapped household budgets; and summer brought $4-a-gallon gasoline, a particular disaster for the Detroit Three, with their anemic offerings in small cars.
And I came to appreciate why automakers obsess about the total number of new vehicles sold each year (they call this the SAAR, the seasonally adjusted annual rate of sales). In effect, the SAAR is every automaker's speedometer. For any company with a competitive line of products in a business where fixed costs are high and market share tends to shift only gradually, total volume is the most important determinant of profitability. We'd started this project in the midst of the steepest falloff in sales that the auto industry had experienced since at least 1950. By January 2009, the SAAR had collapsed to 9.6 million. Extrapolating from this trend, many pundits issued dire forecasts for at best a slow and meager recovery.
But looking at the big picture, I'd begun to feel more optimistic about the prospects for overall sales than I had at the start. Unlike newspapers, an industry I knew all too well as a former journalist and as an investment banker, no one has invented a substitute for the automobile. The driving-age population was continuing to increase by more than 1 percent a year. "Scrappage," or the rate at which cars were junked, had dropped decade by decade, from the 1970s rate of more than 7 percent a year to about 5.5 percent, which meant that the average age of cars on the road was increasing. Car buyers could put off replacement purchases, but not forever. I recognized, of course, that strapped budgets and other factors would keep many Americans away from the dealerships for a good while—GM had nearly totaled itself with overly rosy predictions of recovery. Still, the automakers' prospects weren't all bad. A key part of our task, I realized, would be to arrive at a realistic SAAR forecast to incorporate into our investment analysis.
Our inquiries had led to another pleasant surprise: U.S. automakers were no longer as pathetically inefficient as people thought. We learned this from the Center for Automotive Research, an Ann Arbor, Michigan, think tank whose experts showed up to brief us during those early weeks. Listening to them one morning in our big yellow staff room, I was idly flipping through the package of charts they'd brought when I suddenly sat up and took notice. In 2007, the Harbour Report, an authoritative statistical source on automaking, had found that the Detroit Three needed just over 32 hours of labor to build a car, versus 30 hours for Toyota. That represented a huge advance over 1995, when GM had been at 46 hours, Chrysler at 43, Ford at 38—and Toyota at 29. And given that the Big Three tended to make larger, more expensive cars, the narrowing of the gap was all the more significant. Harbour had concluded, "General Motors essentially caught Toyota in vehicle assembly productivity."
Another somewhat outdated criticism involved labor costs. We'd discovered how difficult it is to compare such costs on an apples-to-apples basis because of complex calculations involving the value of employee benefits, the composition of the labor force, and more. Each stakeholder—the automakers, the union, the creditors, investors—provided different, often substantially different, estimates of labor costs. While it seemed clear that American automakers' costs remained higher than those of the transplants, progress had been made. Just in the run-up to its February 17 submission, for example, GM had succeeded in reducing active employee labor costs per hour from $60.64 to $52.89 (versus $51.62 for Toyota). GM achieved this not by reducing wages for existing workers but by trimming benefits and having new workers start at much lower wages.
There were unpleasant surprises as well. Most glaring was the continuing low opinion consumers held of Detroit's products. A page of analysis from Deutsche Bank captured that succinctly. In almost every category, GM products fetched thousands of dollars less than their Toyota counterparts. A GM "premium compact" sold for $3,814 less than a Toyota, a stunning gap for cars priced at less than $20,000. Consumer perceptions are often slow to change, and I concluded that closing this gap with Toyota could take years. As I digested these data, I also realized that as much as the Detroit Three had been pilloried for missing the small-car market, their failure wasn't due to complete stupidity. If it costs $1,000 or more in extra labor expense to build a car that could be sold for only about $16,000—nearly $4,000 less than its competitor—it would be impossible to make a profit. So why build it?
To my shock, Detroit fell short of foreign automakers on most SUVs and light trucks, fetching as much as $3,500 per vehicle less in some categories. The disparity could be traced in part to memories of the decades when Detroit cars were blatantly inferior in quality. But that also was an outdated impression. For model-year 2000 vehicles, the National Highway Traffic Safety Administration received more than 12,000 complaints about GM cars, as opposed to only around 2,000 about Toyotas. By the 2009 model year, Toyota was down to slightly more than 1,000 complaints—and GM had fallen to an even smaller number. (All of this, of course, predated Toyota's massive recall in early 2010.) And while Chrysler still had none of its cars on Consumer Reports's recommended list, 21 percent of GM's cars appeared, a respectable increase from prior years, although a far cry from Toyota's 77 percent. Despite all this, however, consumers still had good reason for their unwillingness to pay as much for a GM car as for a Toyota: GM cars had lower resale or "residual" value. Detroit, in effect, had created a self-perpetuating disadvantage.
Of course we saw page after page of depressing statistics showing the relentless decline in market share of the three domestic automakers. The drop from nearly 100 percent of the U.S. market until the mid-1950s was gradual until the mid-1990s, when it accelerated. From 1995 through 2008, GM had lost a third of its U.S. market share. There was absolutely no justification for the increase in market share that GM had assumed as part of its viability report. Yet it was equally apparent that there could be no permanent return to profitability without reversing the continuing loss of market share. This would emerge as the company's greatest challenge.
The last big surprise was the rising tide of imported cars. Notwithstanding the presence of the transplants, the share of "pure imports" in the U.S. market had leaped from 19.7 percent in 2005 to 26.1 percent in 2008. Why hadn't this been in the headlines? When I'd covered the Carter administration in the late 1970s, imports had been a huge source of public outcry. And these figures did not reflect vehicles assembled in Mexico or Canada; under NAFTA, the North American Free Trade Agreement, those no longer counted as imports. I'd been a supporter of NAFTA and open trade, but wearing my auto cap now made me more conscious of the loss of U.S. jobs. Still, I had enough problems on my plate without volunteering to take on new ones.
All told, my accelerated immersion into the auto industry left me convinced that there was no fundamental or structural reason why Detroit couldn't compete, at least for the huge American market. To be sure, GM and Chrysler needed massive restructuring of both operating costs and liabilities, such as legacy health care. But if this could be accomplished—and if the companies, particularly GM, could be put under new management—I believed that they could be viable and even highly successful.
The morning after my swearing-in, I made the first of many trips to Capitol Hill to visit with the anxious Michigan delegation, beginning with a stop at the Rayburn House Office Building. The meetings were ceremonial, a chance for the legislators to repeat their concerns and for us to nod solemnly, as if we needed to be reminded of the gravity of the problem. Our host, John Dingell, who had served in the House since 1955, was courteous and statesmanlike, offering many rhetorical flourishes. Sander Levin, who had been in Congress a mere twenty-five years, was low-key and almost avuncular, while his younger brother Carl, also present, had the demeanor of a senior senator. Then we crossed over the Hill to the Senate offices to meet with Debbie Stabenow, who had caused me the most grief during my appointment. She nattered on pleasantly, her thoughts jumbling as she fiddled with her BlackBerry. Leaving Capitol Hill, I couldn't help but think that all that Stabenow and Carl Levin had accomplished by their carping was to delay my appointment by several weeks, making it that much harder to deliver the help that they said they wanted for their state.
My first formal encounters with the auto chiefs had come as GM and Chrysler each appeared at the Treasury for reviews of their financial viability reports. We'd decided to subject the submissions to close examination—the same kind of "due diligence" that top private equity firms apply to potential investments. With the automakers asking for more money, in effect we faced a new investment decision, and we owed it to the taxpayers to give it the best professional scrutiny. Any political considerations, we assumed, could be factored in separately.
Chrysler came first, on Wednesday, February 25. We had of course studied the company's report and found it severely wanting. It asserted that Chrysler could survive as an independent entity by hunkering down, cutting costs and reducing debt, which struck us as far-fetched. The alternative survival path—an alliance with the big Italian automaker Fiat, which Chrysler had floated with fanfare a few weeks earlier—seemed plausible. But the report gave only the sketchiest of details, not nearly enough information for us to evaluate it. Worse, Chrysler's plan did not provide for any reduction in its $6.9 billion worth of senior secured debt, an impossibly heavy burden for a company in such bad shape.
Hollowed out by nine years of mismanagement by its German parent, Daimler, Chrysler had been acquired by Cerberus in 2007 at the peak of private equity mania. So now it was competing against much larger and better-positioned global rivals as a purely North American player, with that market in a historic slump. It had no significant new vehicles in its pipeline, and its current cars and trucks did not stack up well against the competition.
To turn the business around, Cerberus had installed as chairman and CEO Robert Nardelli, a gung-ho veteran of General Electric. I knew Nardelli slightly—he had spoken at our annual conference a year or two earlier. He was known on the business scene for his "take the hill" attitude. The son of a General Electric plant manager, he had risen through the ranks at GE to become one of three finalists to succeed the legendary Jack Welch. When Welch picked Jeffrey Immelt instead, Nardelli left to run Home Depot. Eventually it became apparent that retailing and Nardelli didn't mix. Home Depot grew during the six years he ran it, but it lost market share to rival Lowe's and its stock remained flat. Nardelli also attracted attention for his outsize compensation and his highhanded treatment of shareholders. When the board reportedly pushed him out in early 2007, his severance package was estimated at $210 million.
At Chrysler, though, he seemed quite different from what I had read about him. He was dogged and scrappy and ran the business in a hands-on, close-to-the-ground style that harked back to GE. Nardelli subscribed to Jack Welch's core business philosophy: Be number one or two in your market or get out. Chrysler was, of course, a distant number three in North America, not even counting the transplants. That spurred Nardelli's attempt, starting in mid-2008, to merge Chrysler with General Motors. (Another motivation was pressure from Cerberus and JPMorgan, Chrysler's lead bank, which were increasingly anxious to extricate their capital as the auto market collapsed.)
Much later I learned that GM was hardly the only alliance he'd attempted. He'd also been in negotiations with the two most successful auto executives in the world, Carlos Ghosn of Nissan and Renault and Sergio Marchionne of Fiat.
Ghosn, in the minds of many, is the best automotive CEO to emerge since Alfred P. Sloan Jr., the father of General Motors, who reigned from 1937 to 1956. The Brazilian-born son of Lebanese parents, Ghosn got his start as an executive at tire giant Michelin. Nissan, the unprofitable $56-billion-a-year Japanese automaker, recruited him as COO in 1999 to take over its restructuring plan. Promising to quit if he couldn't return the company to prosperity within two years, Ghosn ignored Japanese traditions by closing plants, eliminating poor suppliers, and laying off workers far more aggressively than was typical for an Asian automaker. By March 31, 2001, the end of the 2000 fiscal year, Ghosn had delivered on his commitment—Nissan booked a $2.7 billion profit, a $9.2 billion swing from the loss it had suffered just twelve months earlier. The turnaround won Ghosn, who became CEO in 2001, acclaim around the world, including Japan, where his exploits were chronicled in a comic book. In North America, Nissan increased its market share against longtime rivals Toyota and Honda and raised eyebrows by fending off UAW organizing efforts in its plants.
Then in 2005, Ghosn became a dual CEO, taking charge of Nissan's minority owner, the $55-billion-a-year Renault, while retaining his Nissan post. Officially a French citizen, he now lived much of his life on a corporate jet, shuttling among Europe, North America, and Japan.
He had approached Rick Wagoner as early as June 2006 about taking a 20 percent stake in GM, but Wagoner persuaded his board to rebuff the deal, in part to save his own job as CEO. Later, Nardelli and Ghosn started to talk, reaching a preliminary agreement in early 2008. The deal, which was never made public, drew on the same playbook that Ghosn had used to unite Nissan and Renault. Chrysler and Renault-Nissan would form a global alliance by sharing design, engineering, and purchasing, saving large sums of money. Each would own stock in the other, to provide added glue. Ghosn would succeed Nardelli as Chrysler's chairman (to his credit, Nardelli, in his efforts to save Chrysler, was selfless about his own titles and role).
Then, as gas prices soared and the U.S. auto market hit the skids, Nardelli tried to broaden the deal into an alliance that would enable Chrysler Financial to tap Renault-Nissan's financial resources. Ghosn agreed to this at first. But in the spring, when business conditions continued to worsen, he got cold feet and withdrew. What could have been a lifesaver for Chrysler was not necessarily good for Renault-Nissan.
Chrysler by now was hemorrhaging cash, and Nardelli pressed on in his quest for potential partners. The merger talks with GM stretched from July to October, when GM effectively broke them off and asked the Treasury for help. Nardelli also sounded out Alan Mulally at Ford, a longtime friend, who told him, "I love you to death, Bob, but I've got my own plan."
Finally Nardelli turned to Fiat. He had already done some business with Sergio Marchionne in early 2008. Chrysler had lacked a small car in its product line, which it needed to meet increasingly stringent U.S. fuel economy standards and to broaden its appeal to customers. Among Marchionne's great successes at Fiat had been the Fiat 500 (or Cinquecento, as it is known in Italian), a stylish, zippy little car similar to the BMW Mini but a lot cheaper. Nardelli, who had injured his back and flew to Turin wearing a brace, spent two days with the Fiat chief. They came to a handshake to produce the Cinquecento at a Chrysler plant in Mexico.
The flamboyant Marchionne was viewed by the inbred auto industry as an arriviste. Raised in Canada, he had started as an accountant and made a career in European industrial companies before finding his way to Fiat. The big automaker was virtually moribund when he arrived. Within a few short years, Marchionne blew up its bureaucracy, empowered a new generation of engineers, and turned Fiat into a growing and profitable automaker. Unlike the buttoned-down Ghosn, he was voluble, idiosyncratic—his trademark was a black sweater, worn sometimes over a dress shirt and sometimes not—and hungry for media attention. But he matched Ghosn's drive. He would cross continents more casually than most businessmen would approach a trip from New York to D.C. He showed every indication of viewing himself as heir apparent to Ghosn as the world's greatest auto executive.
When Nardelli called in early January, Sergio jumped at the opportunity, dispatching squads of executives to Chrysler's mammoth headquarters in Auburn Hills, Michigan. They worked around the clock to negotiate an alliance, using the template that Nardelli and Ghosn had developed. By January 12, the companies had agreed on a sufficiently detailed term sheet that Chrysler's CFO, Ron Kolka, called the Treasury to disclose that an important alliance was in the offing. The tentative deal, announced eight days later, was greeted with as much enthusiasm as could be summoned given Chrysler's precarious state. One industry expert called it "interesting" and said, "It helps the long-term viability."
But the glimmer of hope soon faded. Just before Chrysler's February 17 government deadline, Marchionne told Nardelli that Chrysler could not include their joint plan in its viability report, permitting only a vague description of the alliance. JPMorgan knocked another big hole in Chrysler's report by refusing at the last minute to let Nardelli factor in any reduction in the company's massive bank debt. That ought to have been a routine assumption for a business so close to the abyss.
Our task force, Team Auto, was aware of none of this, of course, but we'd soon get to know Sergio and JPMorgan well. They'd be among our biggest headaches in the race to save the company.