Shockingly poor financial management at General Motors and Chrysler weakened their case for a federal bailout, but officials feared letting them collapse, the former head of a government auto task force said Wednesday.
In a first-person account posted on Fortune magazine's website and in a Brookings Institution speech, Steven Rattner said he was alarmed by the "stunningly poor management" at the Detroit companies and said GM had "perhaps the weakest finance operation any of us had ever seen in a major company".
GM's board of directors was "utterly docile in the face of mounting evidence of a looming disaster" and former GM chairman and chief executive Rick Wagoner set a tone of "friendly arrogance" that permeated the company, Rattner wrote.
bankruptcy
"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," Rattner wrote.
Rattner described his six-month stint leading the Obama administration's auto task force, which pushed GM and Chrysler into quick bankruptcies last summer with the help of billions of dollars in federal aid. The task force won concessions from the union, suppliers, bondholders and dealers, and the US government now owns nearly 61 per cent of GM and 8 per cent of Chrysler.
Rattner said at the National Press Club that he, along with Treasury Secretary Tim Geithner and White House economic adviser Larry Summers, "hated the idea of the US government owning equity in these companies" but they concluded the government needed to protect taxpayers.
"It was frustrating that many commentators were suggesting that the government stay on the sidelines and let the companies fend for themselves," Rattner said. "With financial markets still frozen, both would have unquestionably run out of cash quickly, slid into bankruptcy, closed their doors and liquidated."
Rattner said the loss of the companies could have severely harmed the economy, costing "more than a million jobs in the short run".
He said their failure also would have dramatically deepened and prolonged the recession and would have pushed unemployment rates in several states "above 20 per cent".
GM said in a statement that it was "a new company with a strong balance sheet, less debt and a fresh product line-up that is making consumers take notice. ... Looking back doesn't help us with the important work we have in front of us. We are grateful for the second chance our nation's support has given us, and we are confident we will succeed."