Steven Rattner, one of the people in charge of reforming the Big Three automakers in the US, writes about his experience on CNN Money and in Fortune Magazine. I've excerpted two sections. One shows how groupthink permeated GM. As defined by Wikipedia, groupthink is "a type of thought exhibited by group members who try to minimize conflict and reach consensus without critically testing, analyzing, and evaluating ideas. Individual creativity, uniqueness, and independent thinking are lost in the pursuit of group cohesiveness, as are the advantages of reasonable balance in choice and thought that might normally be obtained by making decisions as a group." A key feature of groupthink is that the group and its members automatically suppress any form of dissent. Groupthink inevitably leads to a bad decision being made at some point.
A second section reveals that Rattner and co might have let Chrysler liquidate if not for the massive unemployment it would cause.
Management has got to go
Everyone knew Detroit's reputation for insular, slow-moving cultures. Even by that low standard, I was shocked by the stunningly poor management that we found, particularly at GM, where we encountered, among other things, perhaps the weakest finance operation any of us had ever seen in a major company.
For example, under the previous administration's loan agreements, Treasury was to approve every GM transaction of more than $100 million that was outside of the normal course. From my first day at Treasury, PowerPoint decks would arrive from GM (we quickly concluded that no decision seemed to be made at GM without one) requesting approvals. We were appalled by the absence of sound analysis provided to justify these expenditures.
The cultural deficiencies were equally stunning. At GM's Renaissance Center headquarters, the top brass were sequestered on the uppermost floor, behind locked and guarded glass doors. Executives housed on that floor had elevator cards that allowed them to descend to their private garage without stopping at any of the intervening floors (no mixing with the drones).
In my relatively few interactions with chairman and CEO Rick Wagoner, I found him to be likable, dedicated, and generally knowledgeable. But Rick set a tone of "friendly arrogance" that seemed to permeate the organization.
Certainly Rick and his team seemed to believe that virtually all of their problems could be laid at the feet of some combination of the financial crisis, oil prices, the yen-dollar exchange rate, and the UAW.
It seemed completely obvious to us that any management team that had burned through $21 billion of cash in a year and another $13 billion in the first quarter of 2009 could not be allowed to continue. Equally important, GM's February viability plan was more "business as usual" and not the aggressive new approach that we felt was essential.
In a mid-March meeting with Rick, I explored his feelings about his team and then tried to work the conversation around to himself. "I'm not planning to stay until I'm 65 but I think I've got at least a few years left in me," said Wagoner, 56. "But I told the last administration that if my leaving would be helpful to saving General Motors, I'm prepared to do it." He added that neither he nor his board thought that was a good idea.
I left my conversation with Rick at that. The next day, I met with Rick's deputy, Fritz Henderson. Another GM lifer (and son of a GM lifer), Fritz conveyed more energy and openness to change. The question for us was whether GM would be better off with Fritz or with an outsider, as Ford (F, Fortune 500) had done in bringing in Boeing executive Alan Mulally. While nervous about whether Fritz could bring the change GM desperately needed, I was considerably more nervous about the likelihood of recruiting a thoroughbred CEO in the midst of the turmoil.
Meanwhile, if ever a board of directors needed shuffling, it was GM's, which had been utterly docile in the face of mounting evidence of looming disaster. We decided to recommend to Tim, Larry, and ultimately the President a package that would include replacing Rick with Fritz as interim CEO, changing at least half of the board, and making an outside director chairman (which should be universal).
A close call on Chrysler
While we had separate teams working on Chrysler and GM from the start, the first and toughest decision that we faced was what to do with Chrysler.
Badly run after Daimler bought it in 1998, Chrysler had been sold nine years later at the peak of private equity mania to Cerberus Capital Management. Larded up with debt, hollowed out by years of mismanagement, Chrysler under Cerberus never had a chance. We marveled, for example, that Chrysler did not have a single car that was recommended by Consumer Reports.
The question for us -- and ultimately, the President -- was whether any restructuring could save Chrysler.
Back and forth the debate went in Larry's small office in the West Wing. Our working team was joined by Diana and other administration economists. Gene Sperling, a Michigan native, argued eloquently and passionately for standing by America's heartland.
Austan Goolsbee, a fearless former University of Chicago economist who had been with Obama since the beginning of his campaign, led the charge against Chrysler, marshaling strong factual arguments. One was that letting Chrysler go would give a needed boost to GM (and also to Ford), since most buyers of Chrysler's strongest products -- trucks, minivans, and Jeeps -- probably would turn instead to the other Detroit automakers.
Harry maintained that a Chrysler liquidation could potentially add billions of dollars a year to GM's operating income in a normal sales environment, vastly increasing the value of the company.
The group was torn (at one point the vote was four to four) and so were Tim, Larry, and I. We intuited that from a theoretical point of view, the correct decision could well be to let Chrysler go. But this was not an academic exercise.
Repeatedly, Larry asked us for probabilities -- what did we think the chances would be of Chrysler making it for two years? For five years? Indefinitely? Pressed by Larry, I came down 51-49 in favor of helping. Comfortable that Chrysler could survive, Larry asked us to recast Austan's analysis into an assessment of the employment effects of a Chrysler liquidation.
We were all shocked to realize that when the collateral damage of a Chrysler shutdown was factored in (like lost jobs at dealers and suppliers), the short-term effect of a Chrysler shutdown could be 300,000 more unemployed, similar to what was lost across the entire economy in the month of July. And with the memory of Lehman's collapse still fresh, we imagined the potential for other systemic risk. That cemented matters for Larry and me.
Yet Chrysler's cupboard was bare. We did not believe we could underwrite its viability without a strong corporate partner, so we turned our attention to that single possibility, an overture from Fiat.
The Italian carmaker had been brought back from near disaster a few years earlier by its own new management team, led by Sergio Marchionne. Raised in Canada, rarely seen in anything but a black sweater, and with an insatiable appetite for the media, Sergio was relatively new to the auto industry but possessed a drive to win that was alien to the traditional Detroit culture. Fiat also brought its advanced products to the table -- small, stylish cars and fuel-sipping engines.
As our March 31 deadline approached, we got ready to brief the President. For the prior six weeks, Tim and Larry had been using their daily briefings of the President to keep him posted on our progress. And we had sent in a couple of lengthy memos for his evening reading stack, which indicated that the only decision over which his advisers were divided was whether to save Chrysler.
In our meeting in the Oval Office on March 26, Larry began to lay out the issues, only to be interrupted after a few minutes by the President, who said "Larry, I've read the memo," signaling that he wanted to dive into the decision items. Quickly, the question of whether to save Chrysler dominated the discussion.
As we went back and forth over Chrysler, the President himself seemed as torn as Larry and I had been. Suddenly, he realized that Austan Goolsbee, unofficial spokesman for the opposition, was not in the room. "Where's Goolsbee?" the President asked. A few minutes later, Austan joined the conversation. But the President had only about 20 minutes available before his assistant, Katie Johnson, came in with a note urging him to move on to his next appointment. "This is too important to try to decide in a rush," the President told us. "We need to get together again later."
For that early-evening session, we convened in the windowless Roosevelt Room, the only real conference room in the West Wing. Larry asked me to begin by summarizing the consequences of refusing aid to Chrysler, and from there the conversation took off. The group was sobered by my assessment that given the early stage of the Fiat discussions, there was only a fifty-fifty chance of reaching an acceptable agreement.
The President's political advisers were as torn as his task force: Polls universally showed the public strongly opposed to the auto bailouts. At the same time, the advisers recognized the severe economic and political consequences of a Chrysler shutdown across broad swaths of the industrial Midwest. We were dazzled that chief of staff Rahm Emanuel -- a former congressional leader -- could identify from memory the representatives in whose districts the large Chrysler facilities lay.
After about an hour, the President asked for any final comments and then said, "I've decided. I'm prepared to support Chrysler if we can get the Fiat alliance done on terms that make sense to us." And we were thrilled when the President said, "I want you to be tough, and I want you to be commercial."
With that, the meeting dispersed. The recommendation to ask GM's Rick Wagoner to step aside had received barely a mention. New to business meetings with Presidents, I found Obama's style consistent with his "No drama Obama" image and on a par with the best CEOs I had spent time with. He was cordial without being effusive and decisive when his advisers were divided.