Overhaul

Steven Rattner, “Overhaul: An Insider’s Account Of The Obama Administration’s Emergency Rescue Of The Auto Industry”, Houghton Mifflin Harcourt, 2010, 319 Pages

This book chronicles the saving of the Detroit auto industry at a taxpayer cost of $82 billion dollars and the saving of 100s of thousands U.S. jobs and the real possibility that all or most of the money will be repaid to the American taxpayer. The restructured auto industry, of which the author was the leader of, is once again prepared to compete in the global market. As tough as recent decades have been for Detroit’s Big Three, the car industry is better positioned to compete than many other U.S. manufacturing businesses because labor is a relatively small part of the cost of building a car—only about 7 or 8 percent.

My Notes:

Pg. 13: Rattner states that the struggles of GM and Chrysler were as much a failure of management as a consequence of globalization, oil prices, and organized labor. Also, he was dismayed by the deep partisan divides and narrow parochial interests that dominate congress.

Pg. 16: Detroit’s ultimate implosion, begun long before the 2008 housing market collapse and financial panic, was triggered by the resurgence of oil prices. In 2004, gasoline, edging up at the pump for a couple of years, jumped to more than $2 a gallon. Suddenly, filling the tank of a large SUV cost $60 or more. For instance, in 2006 Ford lost $12.6 billion on $160 billion in sales. Daimler, decided to bail and, in essence, gave away an 80 percent stake in the business, for which it had paid $38 billion nine years before, to the private equity firm Cerberus. Ford, on the other hand, raised capital (which would see it through the 2008 calamity). GM unloaded assets, but did not do the necessary restructuring demanded.

Pg. 74: The U.S. auto makers had made tremendous progress in matching Japanese hours to produce a vehicle. In 2007 the Harbour report had found that the Detroit Three needed just over 32 hours of labor to build a car, versus 30 hours for Toyota. In 1995, GM had been at 46 hours, Chrysler at 4, and 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. Also labor costs had been reduced: GM had succeeded in reducing active employee labor costs per hour form $60.64 to $52 (versus $51.62 for Toyota). GM had achieved this by trimming benefits and having new workers start at much lower wages. Of course absurdities remained: Detroit’s labor costs became fixed rather than variable due to guarantees to the UAW to continuing paying workers whether they were assembling cars or not. This resulted in the addiction to discounts and incentives for vehicles.

Pg. 126: When asked why he was a Democrat rather than a Republican, Rattner replied, “Three main reasons: Republicans had favored the rich at a time of growing income inequality, abandoned fiscal responsibility, and held unfortunate positions on social issues such as a woman’ right to choose abortion (or Terry Schiavo’s right to die, I might add).

Pg. 140: The clash for clunkers idea actually evolved from a prior German program that had offered the equivalent of a $3,200 rebate for consumers willing to scrap cears at least nine years old and buy newer ones.

Pg. 155: Chrysler’s employee health plan liabilities were shifted to a UAW controlled VEBA structure and was financed by shifting a 55% stake in Chrysler to VEBA. GM did the same transferring 17.5% to VEBA.

Pg. 242: GM was restructured under a bankruptcy plan entitled 363. This created two GM’s: one left behind (Motors Liquidation Company) which would dispose of assets assigned to it, and the other part nicknamed Shiny New GM by the auto team involved in this restructuring. The Shiny part would aim for an IPO in November 2010. Shiny New GM would emerge to operate the 121 properties that would remain in the U.S. and would employ more than 200,000 workers around the world. The company would be dramatically reconfigured, with $65 billion of liabilities stripped from its balance sheet and its annual structural costs in North America reduced by $8 billion.

Pg. 247: At the end of 208, GM employed 90,650 people in the U.S. In the final restructuring plan, that number was projected to be slashed to approximately 63,000. It was no better for Chrysler: from 36,500 down to 30,250.

Pg. 302: The fact was that like the auto rescues, the TARP as a whole has been a huge success at little or no cost to taxpayers. It saved our nation’s financial system and, as a consequence, our economy. If, instead of being able to inject $250 billion into struggling banks on Columbus Day 2008, Hank Paulson had had to subject himself to congressional appropriations hearings, the result would have been an economic Chernobyl.