Former “car czar” Steven Rattner ’74 P’10 P’13 — who oversaw President Obama’s 2009 government bailout of the automobile industry — says he’s been a “free market guy” since his days in ECON 0110: “Principles of Economics.”
How he ended up overseeing the auto bailout, he said at a talk Thursday evening, was somewhat of a fluke.
“I was not a car guy at all,” Rattner said. “I live in Manhattan.”
He hadn’t even been to Detroit in 30 years.
“There was no one in the government who knew anything about autos,” Rattner said. “No people, no analyses, no nothing.”
The government’s disinterest in the auto industry wasn’t necessarily a bad thing — Americans take pride in the government’s separation from private industry, Rattner said.
Rattner was asked by Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers in February of last year to head a team to draft a course of action for the faltering U.S. auto industry. He said the offer came with a guarantee that he would not have to involve himself in the politics surrounding the bailouts, and could focus on doing what needed to be done.
“For whatever reason, the president and his team lived up to that,” Rattner said. “I’m off the payroll now, and I can say whatever I want, but I still think this is a fine example of government at its best.”
Rattner said he had an interest in government since his work as a New York Times reporter in Washington.
But Rattner described his first days in Detroit as a “revolving door of meetings” to brief himself and his team of primarily other financiers on the auto industry.
“Many people on Wall Street aren’t industry experts,” the private-equity investor said. He said he handled the restructuring much as a private investor would have lent money to the companies, had private-sector credit been more readily available.
He said it quickly became clear to him that General Motors Corp. and Chrysler “had only a very tenuous grip on reality.” The chief financial officer of GM, Rattner said, couldn’t tell him on any given day how much cash the company had within $500 million.
“They really did not have a plan to get themselves back to profitability,” he said.
Rattner defended the government’s decision to bail out the auto industry by saying that if the government let companies like GM and Chrysler fail and eventually liquidate themselves with no private capital available to restructure, the damage to the economy would be systemic.
Auto suppliers would shut down, and eventually stronger parts of the American auto industry, like Ford, would be forced to shut down due to a shortage of parts. In all, the failing of the entire industry would have resulted in a loss of 2 to 3 million jobs “easily,” Rattner said.
Rattner praised the $700 billion Troubled Asset Relief Program, which contained funding for the auto bailout, as “the single most importance piece of economic legislation passed in 70 years.”
Before directing taxpayer money to GM and Chrysler, Rattner said, he needed the same assurances as any private investor would need that funds would be properly managed.
GM CEO Rick Wagoner had to go, Rattner said, and Chrysler was left in the capable hands of Italian car company Fiat, led by CEO Sergio Marchionne.
“We ultimately got comfortable because Sergio is a man of great ambition,” Rattner said. “He’s really the kind of guy we’d like to back in the investment business.”
Afraid of the fall in consumer confidence and an ensuing drop in demand for American cars that could come with prolonged bankruptcies of the car companies, Rattner said he created a “surgical bankruptcy.”
Chrysler was bankrupt for just 42 days, and GM for 39.
“Our plan worked, in essence,” Rattner said.
Rattner, a fellow of Brown’s Corporation and a former top Herald editor, is settling a corruption charge involving his role in kickbacks paid by the Quadrangle Group, an investment firm he co-founded, to win deals with New York’s pension fund. Part of the deal may stipulate that Rattner be banned from certain work in the securities industry.
During the question-and-answer period, a man identifying himself as a Brown alum asked if Rattner will be barred under the Securities and Exchange Commission settlement from involving himself in Brown’s investments.
Rattner said he did not want to talk about the subject, but noted he is not on the Corporation’s investment committee.
The lecture, attended by economics professors, students and members of the community in a half-full Macmillan 115, was sponsored by the Economics Department. Rattner, who concentrated in economics, released a book earlier this year entitled “Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry.”