DETROIT'S RENAISSANCE CENTER—built in 1977 by Henry Ford II as a headquarters for his grandfather's car company—was supposed to be a symbol of a revitalized Detroit. That didn't pan out. Detroit's decay continued and Ford decamped to suburban Dearborn. The center's seven glass towers still dominate the skyline, but views from the upper floors reveal a lunar landscape of abandoned buildings and deserted streets that, for most, have symbolized this once thriving city for decades.
Now General Motors headquarters occupies Tower 300 of the RenCen. At 9 A.M. on April 8, Harry Wilson and two Team Auto associates stepped off an elevator there, having fortified themselves with breakfast sandwiches at the McDonald's in the food court below. In the conference room on the thirty-seventh floor, the first cohort of GM executives was waiting, their backs to an expansive view of the Detroit River and the colorful electronic billboards of the modestly more prosperous city of Windsor, Ontario, beyond. Joining our Treasury trio was a clutch of consultants from Boston Consulting Group (BCG), led by Xavier Mosquet, as well as two bankers from Rothschild.
For the next eleven hours, the task force members watched a parade of GM executives flash tables, charts, and bullet points on the projection screen. Whether any of it meant anything would take time for Harry and his two assistants to figure out. Both were young Wall Streeters who had joined Team Auto just two days before. David Markowitz was a thirty-six-year-old University of Michigan graduate whom Harry had known from Goldman Sachs. As driven as Harry, he was also just as analytical and unaccepting of second-rate work. Yet the two were stylistic opposites: David's quiet personality and almost rabbinical manner complemented Harry's gregariousness. Sadiq Malik, at thirty, was a skinny, intense Pakistani American who had graduated near the top of his class at Dartmouth, taken a Harvard MBA, and worked at the Blackstone Group and other Wall Street firms.
The trio had arrived armed with a five-page, day-by-day outline of everything they intended to accomplish with GM over the next four weeks. Harry's objective was to tear General Motors apart and reassemble it as a profitable business. Everyone involved agreed that a total overhaul was necessary. The "viability plan" delivered by GM in February had proven management incapable of dispassionately and analytically creating an achievable business plan. While Ron and I contended with Sergio, the creditors, and the swarm of Chrysler-related problems, Harry's mandate was to design what we had taken to calling "Shiny New GM."
It was obviously a monster challenge. GM's was an antique, closed corporate culture. Old-fashioned notions of hierarchy definitely applied here. Above the floor where Harry's team set up shop were two floors of executive suites that could easily have been in a different tower—or a different city. The company's twenty or so top brass drove each morning into a private parking garage, where their cars would be fueled and cleaned. The half-dozen most senior executives used a special card to ascend in an elevator that would not stop at any other floor (no mixing with hoi polloi) before reaching thirty-nine, where they reigned in splendid isolation. Below, on thirty-eight, were no offices, only the boardroom, the executive dining room, conference rooms, and a guard, who sat behind an imposing round console receiving visitors.
The Obama administration had never seriously considered just letting GM liquidate. America's second-largest industrial company (after General Electric) was deeply woven into the very fabric of America, with its generations of workers, its networks of suppliers and dealers, its historical resonance and symbolism. GM embodied the intimate connection between the free capital markets and the social and political contract on which they depend. It could not be allowed simply to disappear. Beyond that, our early work had led us to believe that the company's problems were, to a considerable degree, of its own making—and fixable. It was the job of Harry and his team to verify this hypothesis while ensuring that we had a sensible plan to end GM's decades-long pattern of careening from crisis to crisis.
Something approaching hope was not out of the question. Despite its disarray, GM was still the source of more than 12 percent of all the new cars and trucks on earth. Its 243,000 employees were spread across 140 countries; GM and its partners actually built cars in 34 of them. In the United States, the company operated from 207 locations in 35 states—not counting dealerships, which were, of course, all over. Everything about GM was supersized; in the course of our work we would learn that the company was party to more than a half million contracts.
Harry knew what he was up against. His first official act with the task force had been to ask for GM's financial model, a kind of mega-spreadsheet that companies use to monitor and forecast revenues, expenses, profits, and other important business metrics. GM took days to respond. When it did, the model was useless. Unlike a normal model in which a user can change an assumption and see how the effects ripple across the business, GM's spreadsheet was "value pasted"—the numbers had been entered manually and no underlying formulas tied them together. "Why can't they send us something where the links work?" Harry complained to our Rothschild advisers. "We should ask them to stop playing games."
Harry's first visit to GM, on March 11, had given him a jarring sense of the weakness at the top. At a meeting of high-level executives, he asked CFO Ray Young how much cash the company needed to operate day-to-day. "Eleven billion," Young replied.
"That seems astronomically high," Harry said. "How did you get to that number?" Being Harry, he'd already calculated that for an automaker of GM's size, a cash requirement proportionate to those of Ford and Chrysler would be in the $6 billion to $7 billion range.
Young explained that GM was using a formula based on sales volume, and started walking Harry through the calculation. But as he cited the figures, it was plain that they didn't add up to anywhere near $11 billion.
"You realize that's six to seven billion dollars," Harry pointed out.
Young seemed genuinely puzzled. After a long and very awkward pause, he stammered, "I'll have to get back to you." Harry was dumbfounded.
It hadn't always been like this. GM's treasury department had a reputation for brilliance dating back to Alfred P. Sloan. It was Sloan who had pioneered the notion of using tight financial controls to keep track of its far-flung and disparate divisions. Based in New York, in the vaulting white marble GM building across from the Plaza Hotel, the General Motors treasury was also known as the cradle of CEOs. Rick Wagoner and Fritz Henderson started their careers there, as had others. In my early days on Wall Street, I heard much about GM's treasury staff, which was viewed as cutting edge and among the best anywhere. But GM's sagging fortunes thinned the talent in the ranks. Many good people had retired or quit, and others who might have once been recruited had opted for more lucrative, glamorous jobs on Wall Street.
From the beginning, Harry and his team encountered financial systems as decrepit as Detroit itself. As GM's financial position weakened, it had cut back on funding for its finance group. When it bought Ross Perot's Electronic Data Systems, it turned responsibility for running information technology over to EDS. In 1996, it spun out EDS but left it to manage GM's information technology, which resulted in GM not controlling its own central nervous system. Complications arising from that decision meant that the company needed weeks, not days, to figure out its cash. To assemble the corporate balance sheet, executives had to e-mail around the world and then stitch together a patchwork of reports. Not surprisingly, different countries had different systems.
GM's Latin American operations had a better handle on cash and cash forecasts than did other parts of the empire. But even in Latin America, it was unclear where the money actually was deposited. "No one had a list of all of the GM bank accounts worldwide," a GM adviser told us. By their own estimate, treasury executives spent 80 percent of their time gathering data and only 20 percent analyzing it. (Harry never did get the financial model he'd asked for, because it did not exist. Rothschild ended up jury-rigging one to serve the task force's needs.)
GM faced analogous problems with its accounting operations. The company often had to restate its earnings and was the subject of repeated inquiries from the SEC. In March 2006, for example, GM announced that it needed to revise its profit figures for the previous six years, as a result of having used questionable accounting techniques. As recently as January 22, 2009—as I was in the midst of deciding whether to take the auto job—GM agreed to settle SEC civil charges relating to its accounting. That a global company could have so shoddy a bookkeeping system was mind-boggling. Such problems led to poor decisionmaking.
GM was continually driving without headlights and kept behaving as though cash were not an issue. The summer that gas prices soared and all-important SUV and pickup-truck sales slid, it belatedly suspended its $1 per share dividend. But it invested in Michigan real estate, laying out $626 million to buy the RenCen, and $200 million more for office buildings in Pontiac. Depressed by Rust Belt malaise and the growing credit crunch, the prices must have seemed like bargains.
It didn't take long for Harry and Fritz Henderson to collide. The day after President Obama told the nation that GM would be on a sixty-day deadline to reinvent itself, the new CEO called to assure Harry that GM was reworking its turnaround plan and would have something for him by the end of the weekend—five days hence.
"Wait a second," the thirty-seven-year-old Harry said to the CEO of the world's second largest automaker. "We're talking about a wholesale revision." He didn't want the GM team to burn precious days producing yet another mediocre plan. This time, nothing short of perfection was acceptable. There was no time to waste on another mediocre plan. Fritz deputized Troy Clarke, the head of GM North America, to deal with Harry and to enlist other top executives to help.
Harry gave Clarke and Gary Cowger, the company's worldwide manufacturing chief, pep talks by phone the following day. "We have a once-in-a-lifetime opportunity to re-create this company," he said. "You've got to not be constrained by historical habits and practices. You have to think about it and say, 'If we were to start this from scratch, what makes sense for this business?'" Harry came away enthusiastic that the GM chieftains understood both his mission and his desire to approach the task as a colleague rather than an adversary. But in truth, the thirty- and forty-year veterans he was talking to were wary at best.
In Harry's mind, rebuilding GM from the ground up meant starting with the "badges" and "nameplates," automobile-speak for individual brands (of which GM had eight in the U.S.) and models (forty-five). He felt GM's mission was pretty straightforward—it needed to sell quality cars at a competitive price, a simple objective that had eluded the Big Three for decades. So he wanted to know how well positioned each vehicle was—its price, profitability, capital requirements, next-generation design, and so on. He imagined each model as having its own business plan; it could be evaluated to see how strong the product was, and if you totaled up all forty-five, you would see how good GM was as a whole.
On that April morning on the thirty-seventh floor of the Renaissance Center, where the new GM began, the trio from Team Auto watched as slides began to flash onto the screen at the far end of the room. Immediately they realized that the presentations were as interesting for what they didn't show as for what they did. Charts of vehicle sales included no historical data, only projections—which consisted, almost without exception, of upward-sloping lines.
Charts of selling prices showed no comparative data, as if there were no such thing as Ford, Honda or Toyota. This was a puzzle. Why would GM present the data in such a useless manner? Whom were they trying to fool? Or did they just not think about historical numbers and comparative data in a systematic way? It seemed incredible that no board members or senior executives had ever demanded such basic rigor to inform their decisionmaking. We never knew for sure, but concluded that it was just another expression of GM's "get along, go along" culture. (To the GMers' credit, when Harry insisted that all analyses include historical and comparative data, they readily complied.)
We knew before setting foot in Detroit that GM had a badge and nameplate problem. It had too many of each without enough clear differentiation in consumers' minds. Sloan's original vision—"a car for every purse and purpose"—had mushroomed into confusion. Sloan had organized an array of five brands that did not compete with one another but rather offered customers alternatives at different price points. As a family moved up the economic ladder, the "ladder of success," it could also ascend through GM's product line, remaining loyal customers at every step.
The first rung was Chevrolet, and so it has remained. GM's massmarket volume leader accounts for more than 70 percent of GM's total sales in the U.S. Pontiac, Oldsmobile, and Buick occupied the next rungs up. The top rung was Cadillac, which Sloan made into a synonym for affluence. The ladder worked brilliantly in the company's heyday, but as GM's dominance eroded and it began to cut costs, it could no longer keep the brands sharply distinct. Instead of complementing one another, they began to jostle and overlap, competing for resources within the company and cannibalizing one another's customers. The addition of specialty brands like Saturn, Hummer, Saab, and GMC complicated the management challenge.
Meanwhile, Toyota was pursuing a different strategy. While it had twenty-nine nameplates (compared to GM's forty-five), it had only two brands. As a result, Toyota could effectively spread its marketing costs over a large number of nameplates within one brand. By offering more nameplates, Toyota was essentially offering more product choices within each brand. This drew more customers into Toyota showrooms and was a key reason why Toyota dealers were much more productive than GM's.
The problem of too few nameplates per brand was exacerbated by GM's financial woes. Each nameplate requires a certain amount of capital to develop, test, produce, and market to customers. To conserve cash, GM started to slow its product replacement cycle. While agile competitors would come out with new versions—called "refreshes" in the industry—every couple of years, GM was taking longer to renew its products. GM brands started looking "empty" and its showrooms stale. Sloan's strategy of "a car for every purse and purpose" had become GM's weakness.
To his credit, Rick Wagoner had recognized that he had too many brands to feed. After becoming CEO in 2000, he eliminated Oldsmobile. And GM had also analyzed eliminating Pontiac, Saturn, and Saab. The proposal made it all the way to Wagoner, Henderson, and marketing chief Bob Lutz, but all set it aside. According to Fritz, killing Oldsmobile had cost more than $2 billion; there would be smaller, but still sizable hits if Pontiac, Saturn, or other struggling brands were jettisoned. In essence, GM didn't have enough money to fully fund these brands or to put them out of their misery—a brutal financial Catch-22.
But when the economic tsunami hit in 2008, selling or killing brands—Saab, Saturn, and Hummer this time, and sharply scaling back Pontiac—became part of GM's viability plan. Harry's question was whether still more should go. GM had blocked out less than an hour for each presenter, but with Harry's grilling, sessions ran as long as two hours. For each brand, he wanted to take nothing for granted but rather to build a business case from the ground up. What was its position in the market? What was its selling proposition? How did it compete? And on and on, as only Harry could do.
Lunch was sandwiches and chips provided by GM, for which the Treasury team paid in cash to comply with ethics rules. As the afternoon wore on, Troy Clarke asked when Harry wanted to see him and Mark LaNeve, GM North America's sales and marketing chief.
"Ten o'clock will be fine," Harry replied.
"Okay, ten tomorrow it is," Clarke replied.
"No, I mean ten tonight," Harry shot back.
When the sessions finally ended late that evening, David, Sadiq, and the BCG team went to dinner at the Coach Insignia, atop the RenCen Marriott. Harry stayed behind, making notes. By the time he left his desk to go to the rooftop restaurant, the elevators had been shut down and he was left to order room service by himself.
The next morning, the team turned to human resources. Harry was pleasantly surprised to learn that in its personnel review process GM held its own with the best in corporate America, such as General Electric. Reviews were 360 degrees, meaning that each individual was evaluated by subordinates and peers as well as by supervisors. But Harry saw what was wrong with this seemingly attractive picture: at GM, there were no real consequences. Poor performers were rarely demoted or fired. "It was feedback but not with accountability," Harry concluded. Welcome to Generous Motors.
This was the antithesis of what Jack Welch had practiced at GE. Welch was legendary for his view that the top 20 percent of employees should be "loved to death" and the bottom 10 percent should be moved out—humanely, but moved out.
GM's cultural problems extended well beyond personnel decisions and the splendid isolation of its top brass. Its decisionmaking was notoriously bureaucratic, slow, and lacking in analytical rigor. A grandly titled Automotive Strategy Board sat atop many layers of management. It convened for two full days every month, yet decisions were rarely reached in one session. Instead, the Strategy Board meetings became grand productions, with pre-meetings for days to prepare for the actual meeting, and charts sent in advance to be vetted, edited, and sent back for final changes. "It was like a meeting of the UN," a longtime GM executive told us.
Among the slides that the human-resources executives showed our team was one entitled "GM's Values." It listed all the right buzzwords—innovation, speed to market, teamwork, and the like. But as Harry and his colleagues looked at it, they realized that the company didn't practice most of those things. The lack of accountability meant that words, not actions, were paramount.
A top-down, hierarchical approach pervaded those upper floors, where real life dared not intrude. Wagoner, Henderson, and Lutz involved themselves in decisions that should have been left to executives several layers beneath them. It was well-known lore inside GM's communications department that in the 1980s, a brochure called "This Is GM" could not be completed until CEO Roger Smith okayed a final color change.
The GM treasury, esteemed though it once was, was famous for meddling. As one of the few GM departments that could peer into every silo, from manufacturing to marketing to purchasing, it challenged small-bore capital allocations at the plant level and dictated how purchasing should handle a small, troubled parts supplier. When a supplier went into bankruptcy, which happened with great frequency in 2007 and 2008 as auto sales slowed, the treasury would hold up minor contract modifications that the supplier was trying to finalize—a process more in line with the duties of a midlevel supply-chain manager. As a result, Rick, Fritz, and other officers faced a mountain of daily decisions. Trivial issues loomed large while big ones got lost. Presentations on major issues to board meetings and executive meetings were often reduced to one or two PowerPoint slides and then put off or passed over lightly. A general aversion to decisionmaking permeated every meeting.
GM's inability to cut bait on poor brands exacerbated the problem. Sales executives complained of spending too much time trying to figure out what to do with Saab, with its tiny thirty thousand units of sales a year. Or devising PR campaigns defending Hummer against New York Times columnist Thomas Friedman, who at one point wrote of the stagecoach-sized SUV, "[Hummer] gets so little mileage you have to drive from gas station to gas station."
The command-and-control culture produced managers unwilling or unable to question bad decisions. In meetings with Team Auto, when asked about areas under their direct supervision, executives would typically defer to Fritz or ask to wait until they'd checked with a senior colleague before answering.
This dysfunction hurt GM's products. A prime example, unearthed by BCG, was how the company designed a vehicle's interior—the place where the consumer spends the most time. The interior is usually among the last elements of a design to be budgeted and completed as a model nears launch. So if a design went over budget, as it often did, financial metrics dictated that the instrument panel or the cup holders be cheapened. A typical cost-cutting measure, which could save about $150 per vehicle, was to use hard plastic inside instead of soft plastic, which consumers strongly prefer. At other automakers, midlevel design chiefs or product planners would be able to block such a false economy. At GM, it took an edict from Bob Lutz to make the cheapening of interiors less than the norm.
Harry was forced to end the second day's inquiries early—at 6 P.M.— because he had invited Cal Rapson, the head of the United Auto Workers' dealings with GM, to dinner. Labor relations had been a relative bright spot at the company. After a crippling strike in 1998, management had dropped its belligerence and worked to cooperate. And while executives were still condescending in their attitudes toward the union, GM had enjoyed relatively peaceful labor relations for years. Critics thought Rick Wagoner had given away too much in the process, however, and with him gone and GM in crisis, Harry saw tough negotiations ahead. He'd sought out Rapson on Ron Bloom's advice.
Having Googled Harry, Rapson arrived at dinner wary. A florid, heavyset sixty-four-year-old with a brushy white mustache, Rapson was a machinist who'd grown up in Flint and worked with the UAW for nearly forty years. He knew that Harry had contributed generously to Republican candidates and had gone to Harvard—two strikes against him, in Cal's mind. But as they sat in an Italian restaurant on the RenCen's ground floor, overlooking the river, Harry described his working-class roots. He also talked about how he thought automaking was a great American industry, which could be fixed if people made the tough decisions to get it back on track. Right now, he maintained, there was a historic opportunity to do that, and Harry was willing to give up a portion of his life to help. Cal began to relax. Hearing Harry's motives made it easier to ask the questions he had to ask.
"I gotta tell you," he said, looking out at the river, "this management plan is crazy. There's no way we can take the cuts that they're proposing. They're closing good plants. They're laying off good people. We can't stand for that."
"Cal, I have to be honest," Harry replied. "Our big beef with the management plan is we don't think it goes far enough. It's like all the other restructuring plans that GM has had over the years. It kind of deals with some of the issues, but not enough, and ultimately leaves the company unlikely to succeed. The difference between this restructuring and previous restructurings is that this has to be the last one, because there is no appetite for another."
"We can't possibly do that," Cal protested.
Harry promised to go out of his way to ask the UAW's advice: "We're working very closely with management to develop a plan. Then we're going to come to you and walk you through exactly why we came to the conclusions we came to. If you've got better ideas, we'd love to hear them—there's no pride of authorship here. If you've got better alternatives, we'll work through them."
Rapson didn't like hearing this, of course. But the decision of whether the UAW would cooperate with Team Auto or use its political power to fight it wasn't his; that would be up to Ron Gettelfinger.
Our plan called for Harry, David, and Sadiq to spend two or three days each week in Detroit, so the following Tuesday they were back, delving into GM's manufacturing. Making a car involves three stages: stamping (sheet metal into body parts), power train (building the engine and transmission), and assembly. There was a substantial mismatch between GM's assembly plants and its power-train plants. The larger of the problems that this created was excess capacity, which amounted to wasted money. But Harry and his team also focused on the potential for inadequate capacity in some areas; this would cause bottlenecks in the event of a rebound in demand. GM's challenge would be to "right-size"—to match its manufacturing to detailed forecasts, model by model.
These were issues that the company would have to solve for itself. For Team Auto, plant closures were such a hot potato politically that we steered clear of those decisions (which tended to be dictated by things like which brands and nameplates were being eliminated). I was repeatedly questioned about this by the press, and honed another sound bite that I would repeat verbatim every time the question was asked: "No plant decisions, no dealer decisions, no color-of-the-car decisions."
Happily, when the team began touring factories, they were pleasantly surprised. For one thing, the relationship between labor and management at the plant level was truly collaborative, much better than it was higher up. For another, the manufacturing process was consistent and disciplined. GM had studied Toyota's state-of-the-art production system and replicated it, adding some improvements, at all of its plants. "Show me your oldest plant that's within driving distance," Harry had commanded his minders, leery that he was being shown only the best plants. They took him to the Flint Truck Assembly Plant, a facility opened in 1947. It was dingier and the lighting was worse than in newer facilities on their tour, but the production system was exactly the same. This corroborated the productivity data we had been studying back at Treasury. For once, GM's numbers were both rosy and real.
Harry also was struck by the pride he encountered among the UAW members, many of whose families had worked at GM for generations. The competence of the plant managers impressed him too. They seemed to be on top of their production processes, effective partners with labor leaders, and constantly looking for ways to improve operations. On the other hand, he was appalled to find that the plants had "segregated" bathrooms—one set for salaried workers, one for hourly workers—a caste system that struck Harry as wrong on the face of it and certainly a factor in GM's checkered history with labor. But the bathrooms were the exception. Overall, Harry thought, here in the guts of the operation, GM's day-to-day workings were solid. It was the head that was rotting.
When the team turned next to sales and distribution, the worries returned. GM had a dealer problem—we'd known that all along. Like Chrysler and Ford, it had way too many, a legacy of the automakers' long history dating back to a rural America. Latecomers like Toyota boasted much more modern and efficient networks. While GM sold about 30 percent more vehicles in the United States than Toyota, GM had four times as many dealers, roughly 6,000 compared to 1,450. Thus the average GM dealer sold 450 vehicles, compared to 1,500 for the average Toyota dealer. In Charlotte, North Carolina, seven GM "stores" (as dealers are known in the industry) sold roughly the same number of cars as the area's two Toyota dealerships. Chrysler's numbers were even worse. As a result, GM and Chrysler dealers were generally dramatically less profitable, had less cash to invest in their stores, and projected a substantially less attractive retail experience to customers. For the many Americans who thought the automakers owned the dealers, this affected the brand perception and ultimately hurt sales.
Driving around on weekends, I began to look out for dealerships and would often see older, smaller, shabbier Big Three stores a short distance from large, gleaming dealerships belonging to Toyota or Honda or another of the transplants.
In typical GM fashion, its effort at dealer streamlining had been too little too late. It had cut about four thousand dealers in the ten years between 1995 and 2005. But during that period, GM's share of the U.S. market had tumbled from 33 percent to 26 percent—meaning the downsized network was not much more efficient than the one with which GM had started. The treatment of dealers in GM's viability plan was more of the same. It called for the elimination of two thousand dealerships by the year 2014. Like a morbidly obese man who doesn't see why dropping twenty-five pounds in five years isn't enough, GM was too slow at shedding its flab.
In fairness, the problem wasn't merely GM's ingrown culture; it was legal too. American car dealers are protected by state franchise laws that essentially require the dealer's consent to terminate the franchise—a one-sided arrangement if ever there was one. Thus closures were not just slow, but expensive; franchisees basically had to be bought out. GM had budgeted almost $2 billion for the proposed next phase, an average of about $1 million per dealership. From our perspective, with bankruptcy came the silver lining that, under court protection, the company would have the right to tear up whatever franchise agreements it needed to.
On April 22 Harry and his lieutenants ended up at the Tech Center, where some of us had gone a month earlier to drive the Chevy Volt. That experience had been fun but irrelevant to GM's near-term survival. The briefing GM delivered to Harry was a lot more practical. It centered on the 2008 Malibu, a midsize Chevy that was competing successfully, for a change, with the likes of the Toyota Camry.
The presentation compared the 2008 Malibu to its mediocre 2006 predecessor. In redesigning the car, GM's product group had, under Vice Chairman Bob Lutz's leadership, for once defied the finance department and won approval to spend an extra $300 to $600 per car on flourishes like higher-quality interior moldings and best-in-class finishing. Those little upgrades struck such a chord with consumers that GM was able to hike the average selling price of a Malibu by $3,200. Retail sales went up by almost 50 percent. The New York Times described the Malibu as "a super Accord, but from GM." The Detroit auto show voted it North American Car of the Year. This simple but important redesign would generate hundreds of millions of dollars of additional profits for GM every year.
At the Tech Center Harry had his first encounter with Lutz, who had godfathered the redesign. An industry legend, Lutz was known worldwide as the quintessential American car guy. He had worked for each of the Big Three (this was his second stint at GM) as well as for BMW, and had been the impetus behind such iconic vehicles as the Dodge Viper and the Ford Explorer. A seventy-seven-year-old onetime Marine Corps fighter pilot, Lutz still drove fast cars and flew his own single-engine military training jet. In GM's bland culture, he stood out like spiked hair at a church picnic.
Harry had admired Lutz ever since hearing him speak at Harvard Business School, and it didn't take long for the two to bond over lunch in the food court. They traded notes on the Marine Corps (Harry had gone to Officer Candidate School at Quantico). As Lutz pulled a Swiss Army knife from his pocket and used the blade to open his sandwich, Harry asked, "If you had to fix GM, what would you do?"
"I'd hire three guys just like me but twenty-five years younger," Lutz growled.
"Who out there is like that?" Harry persisted. "Who could be the change agent for GM?" Lutz could come up with only two names in the entire company.
Lutz, whose years at Chrysler had been under Lee Iacocca, had preferred the Chrysler culture because if people didn't like what you did, they'd tell you to your face. GM was more civil. Middle managers would smile, nod, and keep doing what they had been doing for years. The expression "grin-fucking" was popular around GM.
Also remarked upon was the "GM nod," which referred to the dynamics of big meetings. A decision would be made. The supervisor in the room would ask, "Does everyone agree on this? Have we made a decision?" All the GM people would nod. But afterward, e-mails would pour in from the attendees or their subordinates, questioning the decision, its implications, or how it would be carried out. This would prompt a restudy of the issues. Weeks or months would pass until the once final decision eventually came undone.
The thirty-seventh-floor conference room became the office for the three auto task force members during their trips to Detroit. Unfortunately, it lacked Internet service, and when they asked about this, they were told that the necessary approval process for visitors was too cumbersome to navigate. Harry couldn't believe it. He represented GM's largest creditor and soon-to-be owner, yet the company wouldn't or couldn't connect him to the web so he could do his work. In the end, he and David bought wireless cards with their own money.
The tension between Team Auto and GM quickly mounted. Harry was pushing for fast answers—trying to determine in a few weeks how best to fix GM. But the automaker wasn't built for speed—its systems didn't produce information quickly, nor were its executives used to newcomers challenging them with theories and ideas they'd never heard broached before.
Harry's bluntness didn't mesh well with the GM way. Frank questions like "Why would you ever do that?" or "How exactly does that work?" would elicit replies like, "Well, we've always done it that way." The old-timers at GM resented Harry and his young team. They felt that the Treasury guys lacked industry knowledge and were sometimes asking the impossible. And they sensed that Treasury was starting from the assumption that the GM executives "were a pack of morons," as one onlooker put it. Yet there was little open conflict. That was not the GM way.
Some of the most stubborn opposition came from chief planner John Smith. A forty-one-year GM veteran and group vice president, Smith was a Missourian who had gone to Harvard and come up through the GM treasury. He controlled the company's sales and market-share statistics and assumptions—the ultimate levers of power at GM, because these numbers shaped multibillion-dollar decisions on everything from the manufacturing footprint to parts purchasing to cash on the hood. Smith would often reject data requests from the task force, saying, "We know what we need to do." BCG came in for its share of resentment as well, nicknamed by one GM official "consultants gone wild."
For their part, my task force colleagues thought that having Smith in such a critical job—which included responsibility for certain deals—typified all that was wrong with GM's personnel decisions. He was a man of modest ability who mostly sought to maintain the status quo. Later, members of the new board would privately dismiss him too.
While the tension between Smith and GM's new minders was most palpable, veterans like Lutz, Clarke, and Cowger, all former Wagoner lieutenants, felt that GM had made great progress before the financial crisis at turning itself around. They believed they had done yeoman's work keeping the company afloat despite its crushing liabilities and handicaps. To hear Harry and his even younger aides imply that the company was slow, inept, and out-of-date was insulting, to put it mildly. "Who does this little prick think he is?" they would sometimes mutter after a meeting with Harry.
But not everyone connected with GM responded this way. Longtime advisers from firms such as Morgan Stanley, Alix Partners, and Evercore generally nodded in agreement with Team Auto's requests and prescriptions, which often echoed their own past recommendations to their reluctant client.
Despite his early clash with Harry, Fritz Henderson (who of course owed us his promotion) was receptive to the task force. "Listen to these guys and fully vet their ideas," he would tell his executives, sometimes reminding them, "They have the money." So GM did finally respond to Harry's insatiable appetite for information—the sales and marketing staff alone produced thousands of pages of documents, on everything from the dealer network to residual values.
The debate about brands was painful nonetheless. When a consensus was quickly reached to eliminate Pontiac altogether, that left GM in North America with four brands—Chevrolet, GMC, Buick, and Cadillac. Were further reductions needed? Harry approached the question with an open mind, asking for two-brand and three-brand strategies as alternatives, and assigning BCG to collaborate with GM on the analyses. This didn't work out so well. After days of frustration, the consultants announced that they thought GM was tilting its numbers to favor the four-brand status quo.
To the GMers, the very identity of the company was at stake—how much more of its heritage must GM sacrifice to earn the right to survive? Tensions rose higher in mid-April when Harry asked GM to consider absorbing Jeep, Dodge Ram, and Chrysler minivans. In high-level meetings, GM executives would sometimes abruptly leave to talk among themselves outside the conference room, leaving Team Auto to wonder what was going on.
The two-brand option was the first to fall by the wayside after analysis showed that the GMC name was too valuable to jettison. GMC trucks are essentially the same as Chevy trucks, yet they fetch several thousand dollars more per vehicle. Whether to keep Buick was a much tougher call. To GM's thinking, Buick was needed as an intermediate step for buyers trading up from a Chevrolet and not yet ready for a Cadillac. But our team had trouble seeing this borne out by market statistics, and Buick had a very thin product line.
GM also invoked Buick's enormous popularity and prestige in China. There, unaccountably, it had become the car of choice for top-ranking technocrats and successful entrepreneurs. But that argument didn't convince Harry either. "I don't think Chinese consumers care whether Buick sells in the U.S. And if they did, it would be a bad thing for our China sales," he declared, noting how weak Buick's North American sales had been recently.
The stickiest aspect of Buick for us involved dealers. Modern car dealers typically carry multiple brands, and within the GM universe this meant there was a whole cadre of franchisees selling Buick, Pontiac, and GMC. Taking away Buick on top of Pontiac would leave these dealers with only GMC. We couldn't compensate them by adding Chevrolet to their mix because that would cannibalize their GMC truck sales. Nor could we offer them Cadillac; with its upmarket positioning, the fit wouldn't be good.
In the end, Harry reluctantly agreed to let Buick live, and GM was able to keep the four-brand strategy it wanted. A saving grace was that Buick was planning to introduce two new models in the near future that held great promise, holding out hope that the brand could be at least partially revived. But Harry attached a condition that surprised GM executives: he insisted that dealers' franchise agreements be modified so that if Buick was later shut down, the contracts could be terminated at a manageable cost. Characteristically, the GM executives hadn't thought of this eventuality. They were more interested in the rosy upside possibilities of keeping Buick than in protecting GM in the event it continued to decline. Harry's investment background had trained him to think about managing the downside just as much as the upside.
When Harry was in Washington, he would come into my office and perch on one of the government-issue wooden chairs opposite my desk. We'd catch up on the progress of his due diligence and take a few minutes to talk about the bigger challenges of restructuring GM. Pulsing with energy, Harry generally leaned forward when he was sitting, and spoke in a rapid, soft tone. We both understood that while a quick trip through bankruptcy could repair GM's balance sheet, unless we somehow fixed the culture, the company would slide back toward the abyss.
Harry hated the mediocrity he was finding. He told me how at one review session, Mary Sipes, the chief product planner for GM North America, said she was happy with plans for a particular model because her team had dubbed it "credible."
"Shouldn't the standard we're shooting for be 'compelling,' not 'credible'?" Harry asked. Above all, GM needed an attitude transplant. Its people were so used to losing, to watching market share erode and seeing their vehicles outclassed and outsold, that mediocrity became a self-fulfilling prophecy. Harry was fond of a Vince Lombardi quote: "Winning is a habit. Unfortunately, so is losing." Changing GM's psychology became a key goal for the team.
Typical of the cultural challenge was a lack of focus on shareholder value. In all our time interacting with GM executives, we never heard any of them utter that all-important term. Chatting after one lengthy session on the thirty-seventh floor, Troy Clarke told Harry that earlier that day, Ray Young had given the senior leadership a quick tutorial on equity value and "total enterprise value." Troy said he'd been fascinated to learn that if they cut annual operating expenses by $8 billion, they would add approximately $36 billion to GM's worth! He was so pleased by this discovery that he did not notice that Harry was aghast. How could the head of GM North America not understand how value is created for shareholders? The sad truth was that no one at GM thought like an owner.
Reminders of GM's lack of financial discipline were always crossing my desk. The Bush loan agreements required the company to ask for the Treasury Department's approval of any nonroutine expenditure of more than $100 million. Requests from GM's treasury usually arrived in the form of a PowerPoint deck, a handful of pages with no backup analysis or other justification. It was GM's arrogance and sense of entitlement at their worst. The company expected us to take its word for each submission and rubber-stamp the funding, which would of course have to come out of taxpayers' pockets. Close advisers to GM had noted a similar fecklessness for years. At board meetings, $1 billion often seemed the smallest significant amount. Proposals to spend, say, $500 million on this project or $300 million on that would show up on slides as $0.5 or $0.3. Presented that way, a half-billion-dollar expenditure could seem hardly worthy of discussion.
The most frequent beneficiary of GM's lax spending was Delphi, the troubled $18-billion-a-year parts maker that GM had spun off ten years before. Delphi had been languishing in bankruptcy since October 2005, but remained GM's sole supplier of such critical components as steering assemblies. By exploiting that dependency, Delphi had succeeded in extracting huge concessions from GM—a total of $12.5 billion since the spinoff.
In early March, we faced our first Delphi request. GM wanted to pay the parts maker $150 million for operating funds to tide it over for a single month! That ask was coupled with another involving a complicated proposed transaction to buy back the steering business from Delphi, also explained in a single page of PowerPoint. All told, GM would be providing more than $350 million, money it would probably never get back. Yet so certain were GM and Delphi of our acquiescence that Delphi had already issued a press release announcing the agreement.
When Harry asked the GM team how the $350 million would serve Delphi, he was told that it would cover Delphi's operating losses for a period of time, probably two months.
"Then what?" Harry asked. He was told that Delphi would likely be back at that point, its bankruptcy unresolved and asking for more money. "How long has this been going on?" he asked.
"A long time."
Harry wanted to meet with Delphi's management to try to reach a resolution that would bring the company out of bankruptcy, end the threat to GM's supply and production, and minimize the use of taxpayer cash. At a hastily called meeting with GM and Delphi representatives, he looked across the table at a senior Delphi executive who was demanding a massive cash infusion from GM and asked, "Why is this a good deal for GM? Why would we ever want to do this?"
"Because if you don't, we'll shut you down," the Delphi official replied.
Harry had been through enough negotiations to know that you can't give in to threats. "We're not going to do it," he said.
When Harry reported on the meeting, I immediately agreed. A phrase from history flashed into my mind, America's repudiation in 1799 of extortion demands by the Barbary pirates: "Millions for defense, but not one cent for tribute!" This had led to a two-year undeclared war.
As Team Auto delved into Delphi, we discovered one of the most convoluted financial messes any of us had ever seen. The prolonged bankruptcy had produced a capital structure with layer upon layer of debt. Effective control of the business rested with a group of hedge funds, some of which had bought in when Delphi looked like a bargain. They were frustrated with management for not making any fundamental changes to Delphi during its long bankruptcy and were anxious to recover their capital in any way they could. Delphi was also mired in long-running discussions with the Pension Benefit Guaranty Corporation, the independent federal agency that insures private pensions, about its grievously underfunded pension plan.
Privately we told GM that we were going to hit the pause button on Delphi until we figured it out. Though Delphi was important to GM, the sheer volume of outstanding work dictated that we had to prioritize. Ray Young and his associates were not happy; they didn't like being second-guessed and were more scared of Delphi's threats than we were. In their "spare time," Matt and Harry began to sort through the rat's nest. They soon learned that Delphi was exaggerating its need for cash. It was sitting on sufficient rainy-day capital in a sequestered account that the hedge funds refused to release. GM and the hedge funds tried to bridge their differences, but negotiations broke down.
While engaged in this maneuvering, we also undertook contingency planning in the event of an actual Delphi shutdown.
"How long could you keep the factories running if they cut you off?" Harry asked Troy Clarke, GM's North America chief.
"We couldn't," Clarke said.
Incredibly, GM had never tried to stockpile critical components in the event of a Delphi shutdown, nor had it done any meaningful work to create alternative sources of supply. Harry was stymied until later that day, when he and Clarke began a discussion of GM's upcoming production plans, which included a summer shutdown that is routine for automakers. The normal shutdown was four weeks, but this year GM wanted to make it longer to reduce the bloated supply of cars on dealers' lots.
"Wait!" said Harry. "If you shut down, doesn't that eliminate the impact of Delphi's threat? Suppose we make the shutdown even longer?"
By mid-April, we presented Larry and Tim with a plan that we believed would turn the tables and force Delphi into a reasonable negotiation. Would Delphi or any of its investors really want to be perceived as holding GM hostage at such a precarious economic moment? After our confrontation with the Chrysler banks, Larry was at first hesitant to pick another public fight, but Tim backed our strategy, and Larry came around.
On April 23, GM announced it would shut down thirteen North American plants for an extended period. While the closure was partly aimed at reducing the bloated supply of cars on dealers' lots, the accompanying news release—drafted in large part by us—was blunt. Unless Delphi came to terms with GM, it said, "Delphi or its lenders could force GM into an uncontrolled shutdown, with severe negative consequences for the U.S. automotive industry."
Shortly thereafter, the creditors released cash to provide liquidity to Delphi. We had won round one. The negotiations with Delphi continued, but with Matt and Harry forcing GM to bargain hard and strike a deal that satisfied GM's operating needs at the lowest cost to the taxpayer. They began laying the groundwork for GM to take back control of the steering-assembly business as well as of four "keep sites"—Delphi factories that made other key components.
GM's far-flung international empire was its other great cash sponge. We regularly received requests to fund subsidiaries abroad, and just as regularly rejected them. While we were legally permitted to approve these requests—and some may have represented good business decisions—I knew that part of my job was to be sensitive to the politics, particularly where taxpayer dollars were concerned. I developed what I thought of as "the Washington Post test": How would the public react to a headline that said the Obama administration was in effect allocating hundreds of millions of dollars of public money to shore up GM Australia, or GM Korea? We managed never to violate this principle, but GM Europe tested it most sorely.
GM Europe, with its flagship business in Opel, was a major automaker in itself. It had $34 billion in annual sales, making it about 70 percent the size of all of Chrysler. It sold about two million vehicles a year, employed 55,000 people across the continent, and was GM's biggest international headache. Not surprisingly, it and other European automakers were suffering many of the same woes as their U.S. counterparts, with the complexity of European regulation and politics layered on. Like its Detroit parent, Opel was broke and in urgent need of capital.
Opel's main creditor was something called the General Motors European Treasury Center, or ETC. This was a kind of offshore kitty where GM pooled excess cash from subsidiaries around the world, sort of a central bank for its non-U.S. operations. The ETC would lend the money, in turn, to other subsidiaries in need. Over the years, Opel had borrowed more than $1 billion from the ETC, and a failure by Opel to repay these debts would hobble other, healthier operations in places like Brazil and China.
We wanted the German government to do as ours and Canada's had done—pony up to rescue one of its biggest employers. With our encouragement, GM informed the German government in mid-March that it was willing to cede majority control of Opel to anyone willing to put up the 3.3 billion euros (approximately $4.4 billion) that the business needed to turn itself around. But while the government expressed a willingness to help, it faced domestic opposition. Instead of being on a postelection honeymoon like President Obama, Chancellor Angela Merkel was just six months from her next trip to the polls. She decided that bailing out Opel would be political suicide unless the company could arrange at least a modest infusion of fresh capital from commercial sources, ideally GM or, alternatively, a private investor.
No European nation wanted to see its Opel facility close, but neither was any eager to put up cash, certainly not without assurances that its jobs would be preserved. I was witnessing a small example of what I had written in op-eds: Europe is not a nation but a collection of countries loosely affiliated by ambition (to be like the United States) and fear (of repeating past mistakes, including two world wars). Each country worked furiously to protect its own interests—ambassadors would call on us to lobby the Germans to treat them fairly in the Opel situation!—but closing factories and shrinking capacity, though needed just as urgently in Europe as in the United States, was almost unthinkable. European mores placed too much emphasis on preserving jobs, however uneconomical they might have been.
The Germans continued to pester us for aid; we kept asserting our unwillingness to let GM divert capital to a European problem, particularly in the absence of meaningful European support. Eventually, Germany agreed to provide a 1.5 billion euro bridge loan to enable Opel to seek a private-sector partner. (I was amused to note that this bridge loan included the condition that none of the money was allowed to "leak" from Opel back to the United States.)
From GM's perspective, Opel posed a tough dilemma. If forced to give it up, GM would cease to be a global company at a time when Ford and other rivals were trumpeting their ability to produce models that could be marketed around the world. In addition, GM's midsize-car design and engineering operations were based in Europe and would have to be replicated if Opel was severed. (Korea would have been the most likely place.) But given the sensitivity to how TARP dollars were used—not to mention the bigger challenges GM faced—we felt we had to take a hard line. Opel was secondary; we needed to concentrate on building Shiny New GM.
Throughout these sometimes fraught dealings with GM and Chrysler, Ford made sure it was never completely out of mind. Alan Mulally phoned Tim regularly and often sent emissaries to me. Ford's message was always the same: We're struggling too, but we're fixing the problems ourselves. Don't penalize us because we didn't take your money. At the same time, Mulally was generally supportive of our work—he knew that the failure of GM and Chrysler would wipe out much of the supply base and make it difficult or impossible for Ford to produce its cars.
One of Mulally's delegations showed up at Treasury in late April: Lewis Booth, a crisp Englishman who was the CFO; Tony Brown, the tall, heavyset, mustachioed African-American global purchasing chief; and Ziad Ojakli, a compact, garrulous Brooklynite and former Bush White House official who was head of governmental affairs and seemed never to stop talking. "Our plan is working. We are viable," Booth told us as we sat around the conference table in the yellow-walled room 2428.
All three had been in the main conference room at Ford headquarters a month earlier, the day President Obama briefed the nation about his decisions on Chrysler and GM. The Thunderbird Room, as it was called, was adorned with eight clocks, showing the time at Ford installations around the world, and black-and-white photos of the Model T and Henry Ford. Mulally had turned it into Crisis Central as he and his team grappled with the present dramatic downturn.
Like GM and Chrysler, Ford had been fighting a losing battle for more than thirty years to maintain consumer confidence and auto sales. Despite the boom in SUVs, it had spent many recent years bleeding cash while shedding jobs and plants. Yet because of its bold decision in December 2006 to raise $23.5 billion by hocking everything it owned, the company that had long trailed GM now found itself just enough better off not to be in the throes of an impending bankruptcy.
All the same, the deepening recession was brutal. Ford, like GM, was saddled with too many dealers, uncompetitive labor rates, and a dependency on gas-guzzling trucks and SUVs. Ford had burned through nearly $21 billion in 2008. In January 2009, after reporting a $5.9 billion fourth-quarter loss, it drew down its remaining $10.1 billion line of credit. It had a quarterly cash drain of about $5.5 billion, and if business didn't pick up within a year, Chapter 11 would threaten it too. Meanwhile, its giant finance arm, Ford Motor Credit, was paying sky-high interest rates for the capital it needed.
Before the crisis, the Thunderbird Room had been the site of once-a-week meetings in which the top two dozen Ford executives around the world—from marketing to product development to Ford Credit to human resources—would deliver rapid-fire reports on their operations. Now the meetings were happening every day, sometimes twice a day, and often on Saturdays and Sundays too, as the executives confronted the effects of collapsing sales and the question of what would happen to Ford if its Detroit rivals went down in a heap.
Mulally was a relative newcomer. A former Boeing executive who'd lost the race to become CEO, he was a Kansas native who sprinkled his speech with expressions like "neat" and "gosh." That Boy Scout demeanor concealed a fierce drive to win. Bill Ford Jr. had given him the reins in September 2006 when the forty-nine-year-old scion decided he wasn't the right guy to ruthlessly pare down and fix his great-grandfather's century-old business. The massive borrowing initiative was already under way; Mulally encouraged Ford, who remained as chairman, to raise even more. At the time, the received wisdom on Wall Street and in auto circles was that Ford's fundraising was an act of desperation, necessary because Ford was so far behind GM in product development and modernization.
The new CEO's second boost to the company was working with Bill Ford to sell off Land Rover, Aston Martin, and Jaguar, high-end brands the company had acquired. They'd been meant to become the centerpiece of Ford's growth strategy, but instead they had cost billions of dollars, in one fix-it attempt after another, and were a constant distraction for management. Ford pursued a dual strategy in response to the bailout. In the press and congressional hearings, it applauded Washington's efforts to help GM and Chrysler. Mulally had gone to Washington in November and December 2008 to support his rivals and to underscore the need for a healthy U.S. auto industry.
The second part of the strategy was more private and less benevolent. Ford did everything it could, in its business operations and its lobbying, to ensure that it would not be hurt by the rescues. "Disadvantaged" became the watchword—as in "we should not be disadvantaged by what the government does to help GM and Chrysler."
This aspect of the strategy was tricky, because Ford in essence wanted the benefits and advantages that GM and Chrysler were poised to get, namely a cleaner balance sheet, lower labor costs, and access to cheap money from the Fed. But it didn't want the negatives, like the executive-compensation restrictions, the elimination of the Ford family's super-voting stock that allowed them to control the company, or the stigma that came with taking taxpayer money. And of course it didn't want to consider, or even let anyone think it would entertain, a Chapter 11 bankruptcy filing.
Senior executives like Booth and Brown closely tracked what the government did to aid GM and Chrysler. They monitored press re-leases, statements, Chrysler and GM submissions, and news stories about the task force. They watched how developments at the two automakers compared with Ford's own efforts. Special attention was paid on five fronts: labor, dealers, suppliers, debt, and credit. Ford's status vis-à-vis its Detroit rivals was a regular and frequent topic in the Thunderbird Room.
Mulally interrupted this particular meeting—now four hours in—for Obama's speech. The President's image came up on the oversize screen, and the executives around the large circular table listened as he delivered his restructure-or-liquidate ultimatum to Chrysler and GM. Some, like Ojakli, wondered whether government-backed warranties would be enough to keep customers buying. When Obama finished, Mulally flipped off the TV and said, "This is our time to be humble and focused. We need to show that what we are doing here works."
So Ford moved aggressively to keep pace with the forced restructurings. In April it reduced its debt by $9.9 billion by offering a mix of cash and common stock, one of the largest debt exchanges in corporate history. It won relief from the UAW akin to what GM and Chrysler achieved (although the rank-and-file members voted down the new Ford contract in the fall of 2009.) It cut hundreds of dealers. To Ford's giant purchasing arm, which spent about $65 billion annually for everything from steel to seats to floor mats, Obama's speech had already brought relief it could not have secured by itself. By Ford's estimate, some 70 percent of its suppliers also did business with Chrysler, GM, or another big automaker. A free-fall, Lehmanlike collapse by a major rival could take down a supplier and shut down Ford as well; to protect itself as best it could against that eventuality, Ford had reserved hundreds of millions of dollars for supplier support. Obama, with his implicit promise that the White House would not let GM and Chrysler collapse, enabled Ford to free those reserves and apply them to other headaches.
My own sense, watching these executives operate, was that Ron Gettelfinger had been right. Months before, asked by a congressman to rank the automakers' leadership, he'd testified under oath that Ford's was the best management in Detroit.
By late April, Harry had the rudiments of an operating plan for GM. It dramatically accelerated and magnified the restructuring the company had originally proposed. Pontiac, Saturn, Saab, and Hummer would be eliminated almost immediately. By concentrating GM's focus, the number of new launches and "refreshes" of existing models could be increased from thirty-nine to forty-four over the coming five years. There would be five hundred fewer dealers four years earlier than in the previous plan. Plant closures would be accelerated by six to twenty-four months. A further 8,000 hourly workers and 1,250 white-collar executives would go. All told, the restructuring was expected to reduce North American operating costs by $8 billion a year. And while GM had been comfortable with a plan that allowed the company to break even at U.S. sales figures of 11.5 to 12 million a year, Harry was prepared to fight to cut costs until GM could break even in a 10-million-sales environment, still slightly higher than the depressed levels of early 2009.
The plan was far from ready for public consumption when, on Friday, April 24, Harry got a late-afternoon call from an anxious Walter Borst, the treasurer of GM, and a half-dozen members of his team. "We need your signoff," Borst said. They were racing to file the bond exchange offer, and they seemed to think they had to include the restructuring plan. We'd long since taken for granted that GM would need a trip through bankruptcy court, and most of GM's leaders understood that too. Knowing that the exchange offer was doomed to fail, we had ignored this bit of Kabuki theater up to now. But the GM finance people persisted in going through the motions, attending to the minutiae of regulations requiring any major change in plans to be included in the prospectus.
Harry, as it happened, was taking a rare break. He had gotten home to New York early and was playing in the back yard with his kids. He also had discovered, after many rounds of questioning, that the company had the option to delay including the details of the restructuring plan for up to two weeks. So he was in no mood for GM silliness.
"Guys, what do we think the probability of this deal happening is?" he asked, referring to the bond exchange. No one around the speakerphone at GM would give an answer.
"Give me a number," Harry persisted. "Is it less than 50 percent? Less than 10 percent?" Still no answer. He found it incredible that the company was consuming so much time and energy on a plan and no one would hazard a guess as to whether there was any chance it would ever be used! In Harry's mind, this was the exact problem with General Motors—large numbers of people running hard toward a goal of limited or nonexistent value and thus distracting from the really important priorities of the business. "I will give you a number. I think less than 5 percent. And so because we have a massive amount of work to do for a bankruptcy filing that is highly likely in the next several weeks, and I think this has an extremely low probability of happening, I cannot spend several hours going through comments on a prospectus that won't do anything to help this company."
Larry had pushed us from the start to play down Team Auto's role and keep the emphasis on GM and Chrysler managing their own affairs. That ended up being partly true of GM, in the sense that Harry and his team tried to set parameters and assumptions for its executives in the hope that they could then produce the specifics of a restructuring plan. In reality, the talent and determination of Harry, David, and Sadiq were what really drove the process. As we drafted press statements and fact sheets, I would constantly force myself to write that "GM" had done such and such. Just once I would have liked to write "we" instead.