The Car Czar Speaks

Steven Rattner talks to FP about how he pulled Detroit back from the brink -- and what lessons that success could have for Obama going forward.

Neilson Barnard/Getty Images for Fortune Magazine
Neilson Barnard/Getty Images for Fortune Magazine

Two years ago, no one would have believed that by 2010, America’s Detroit-based automakers would be turning a healthy profit. Sunk by billions of dollars in debt and obligations, during a time when car sales were at a nadir and the financial sector was too wobbly to offer backup loans, America’s "Big Three" — General Motors, Ford, and Chrysler — seemed to be on their deathbed.

Then, on New Year’s Eve of 2008, a phone call between incoming Treasury Secretary Timothy Geithner and private investor Steven Rattner changed everything. Rattner accepted the challenge posed by Geithner in that call: run the government’s reorganization of the auto industry. He was named the government’s "car czar" in the spring. And in just over a year, the team would turn the automakers’ fate around. The team slashed overhead costs, brought in new talent, and got the companies lean enough to compete as 21st-century firms. In short, the auto industry is back on its feet and finally making money rather than losing it. In August, GM filed for an initial public offering (IPO) to raise $100 million. And so remarkable was the success that the Economist, which had railed against the plan and skeptically dubbed GM "Government Motors," apologized to Obama in August.

Rattner is in the news today for a rather different sort of financial deal — a scandal in which the financier’s private-equity firm, Quadrangle Group, was accused of offering kickbacks and favors for access to New York’s pension fund. Rattner will pay $6 million to settle the case. It comes just days after Rattner’s newly released book, Overhaul, tells the story of the auto rescue — a story about the political wrangling over the more controversial elements of President Barack Obama’s reconstruction plan. Rattner’s settlement may do damage to the image of the reform-friendly team that engineered the auto rescue that the author portrays. Before that news, Foreign Policy‘s Elizabeth Dickinson spoke with Rattner about why Obama hasn’t gotten credit for the restructuring and why his administration has struggled to replicate its success.

Foreign Policy: You’ve worked so closely with the White House — what were the one or two things you learned about the way that Obama runs his administration?

Steven Rattner: Many people have raised the question of whether Obama is qualified to be, in effect, the most important CEO on the planet, given the fact that he’s never run anything except a Senate office and some campaigns. I spent 26 years [in business and] met many CEOs, and I honestly think he’s a natural. His temperament, his managerial style, his willingness to dig into things that are far from his sweet spot, were all very evident to me. He came to the meetings prepared; he’d done his homework. He asked all the right questions, and he made sure everyone expressed their views. In short, he did everything a good CEO does. And then he made decisions.

FP: As an outsider now, what would you say needs to happen for the auto industry to continue growing?

SR: I think the most important thing is to not muck around with the companies and let the very professional management teams and boards that were put in place do their job. One of the things that I think the administration was very good about was keeping the auto rescue disconnected from other policy objectives. They never said, we should make requirements about fuel efficiency or green cars or anything beyond what’s already required for every automaker. To try to make policy around helping the auto industry — whether it be protectionist kinds of things or other things — I think would be a big mistake.

FP: The auto reorganization was arguably a huge success. But the administration hasn’t necessarily gotten much political capital out of it. Why not?

SR: For whatever sort of reason, I don’t think the president has gotten the credit he deserves for this. We’re in what everybody calls the silly season [of midterm elections], where everything is so influenced by the politics. And running [one’s campaign] against bailouts in general, including the auto bailout, seems to be a very viable political strategy. So you have people from both parties doing it, and that makes it hard for the president’s message to break through.

I would like to think that in the fullness of time, as GM goes public at what I think will be a good valuation and as the money starts to come back to the Treasury, people will see that this was a smart thing to do. But I certainly agree that at the moment it hasn’t resonated the way it should.

FP: You covered Jimmy Carter’s White House for the New York Times back in the 1970s, and many people have made a comparison between Obama and Carter. Do you see that resemblance at all?

SR: I’ve heard that analogy, and I just don’t agree with it. I’m not going to sit here and say that the president has hit a home run in conveying his message during this election season. But the idea that he’s Jimmy Carter sitting in a sweater by the fire is crazy. I think he’s got good policies; I think he can explain them. I just think it’s very tough when you have 9.5 percent unemployment to convince people you’re doing a good job.

FP: Something that was so striking in your book was some of the examples of the decadence and the disconnectedness of GM in particular. Does this offer broader lessons about how U.S. industry will have to change to compete in a globalized world?

SR: I would agree with you completely. I would say one thing a little bit differently: The notion that these large companies are of a single nationality is really archaic. In other words, GM has a huge business in China, a huge business in Brazil, a large business in Europe in the form of Opel. GM is no longer competing just against Ford and Chrysler where it’s OK to just do a little bit better than the other two Detroit companies and you’ll be fine. They’re competing globally against all these other companies, many of which are tightly managed, on their game, focused, and so on. So it does put pressure on every company and every multinational business to be on their game, and that’s unambiguously a good thing.

FP: Do you see the U.S. auto industry stepping up to the challenge?

SR: I do. What’s interesting about the auto business is that all three companies now have CEOs who did not originally come from the industry. Sergio Marchionne at Chrysler is the closest thing in that he ran Fiat for a number of years, but he then had a very different background including as a banker. That little fact may be complete coincidence, but I think it’s more likely that it [indicates] that each company recognized that it did not have the talent either in its own company or in the industry to do the job. And so it reached out to what I view as world-class CEOs from other industries to step in.

FP: Well you mentioned the automakers’ business abroad. Again here too, arguably they’ve been much more successful in places like China a
nd Brazil lately. Why do you think that is?

SR: I think I can answer the question by asking about why they were so unsuccessful in the United States. They were just burned by huge legacies, and I don’t mean just the legacy health-care costs for the United Auto Workers, but a whole historic apparatus of management of dealers, of labor, that just didn’t work anymore in the modern world. In these other countries, they were presumably able to start with a clean sheet of paper and build an organization and a structure for the business that was in keeping with the 21st century. In the United States, until the restructurings, they were operating a business that was more in the mid-20th-century form. And that just didn’t work anymore.

FP: Talking about the success of the restructurings, how could Obama take the lessons of that success and transfer them to other areas where his administration has not been as successful — for example some areas of foreign policy?

SR: On Afghanistan, to pick the most pressing foreign-policy question, the difference between that and the auto restructuring is that, in the case of the auto restructuring, we actually did have available to us a clear path forward that made sense. In the case of Afghanistan, they were faced with a series of equally unpleasant choices and none that people could look at and say, "This is great; this is gonna work; let’s do this."

So the president quite correctly devoted extra time to those discussions, and they were brutal. They were long, long discussions, and from everything I’ve heard, also very thoughtful and constructive. But it was really a tough decision. And much tougher than any of the decisions we had to make on autos.

The other thing I would say is that, in the case of autos, we didn’t have to deal with Congress because we had access to TARP [Troubled Asset Relief Program] money. The fact is that on most policy decisions, you also have to factor in what can be achieved legislatively, and right now that’s a very, very difficult piece of the puzzle. Another policy area about which there were tough and long discussions was over what to do with the banks. Again there, I would argue that the choices that the administration faced were very unpleasant choices, and so again they took a lot of time, they came to a point of view, and I think it was the right one even though they get criticized for it.

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