Overhaul (28 page)

Back and forth the two sides went, making little progress as precious days elapsed. Sergio argued with Nardelli. Sergio's deputy Alfredo Altavilla argued with Tom LaSorda. Even Fiat's investment banker Horrocks and Chrysler's restructuring consultant Manzo fought.

While it was understood that Nardelli and his team would be leaving, they retained substantial leverage. All of us felt it important to have the old management team's "buy-in" for the new business plan, particularly since Sergio wanted more money from the Treasury than Nardelli had said was necessary. Sergio was aware too that, as a foreign company, Fiat would benefit from the "air cover" of support from the Americans who'd been running Chrysler.

When neither side had budged by late Friday night, April 10, Ron Bloom decided he'd had enough. He ordered the two junior members of our Chrysler team, Brian Osias and Clay Calhoon, to fly to Detroit first thing Saturday and not to come back without a set of projections to give to the banks. Horrocks, speaking for Fiat, told Clay that the meeting wouldn't be at Chrysler's headquarters in Auburn Hills but would be held instead at a nearby hotel. Perplexed, Clay called Manzo to ask about the reason for the odd change. Manzo was dumbfounded; Fiat had not informed Chrysler of the meeting. He was furious. After days of trying to work out a unified set of projections, Manzo now felt blind-sided.

After a flurry of angry phone calls, the Saturday meeting was moved to Chrysler and the Chrysler team was invited to join. By 11
A.M.,
Osias and Calhoon convened more than two dozen Fiat and Chrysler executives and advisers around the large table in Chrysler's fifteenth-floor boardroom. The executives were almost all middle-aged industry veterans. Osias was thirty-two years old and Calhoon was twenty-six, and both looked younger than their years.

"We're going to sit at this table until we're done," Calhoon announced.

No one left until two o'clock Sunday morning. By then, only one matter remained: an estimate of the incentives that Chrysler would have to offer consumers ("cash on the hood," in industry parlance) in order to meet the sales projections. Cash on the hood had become a emotional issue. In recent years Chrysler had led the industry with incentives as high as $4,000 cash back on some SUVs. Sergio, unfortunately, had ridiculed the practice. Leaders from the old regime agreed that the incentives were too high, but felt that Sergio had no sense of the need for them in a marketplace that was not his own and that had grown to expect them. Rather than try to sort out the disagreement, Osias and Calhoon let the exhausted executives go home—and made them come back later on Easter morning. They deadlocked all the same, and it took a call that day from Ron to Sergio to put the cash-on-the-hood issue to rest.

The head butting led Ron reluctantly to conclude that Fiat and the UAW would never reach agreement on their own. He summoned both parties to Washington and installed them in separate rooms on different floors of Treasury. A third room was reserved for Nardelli and company, who would spend the following days overseeing Chrysler via their cell phones and BlackBerrys and cooling their heels. For most of a week, Ron was Henry Kissinger shuttling between the North and South Vietnamese. Fiat and the UAW both understood that Chrysler's wages would have to be competitive with those of the transplants. Now that Sergio had committed to a projection of future sales, there was finally a quantitative basis on which to negotiate.

We knew from the outset that reducing hourly pay for active autoworkers would be confrontational beyond imagination, so we were relieved when it turned out that base wages were not that different between the Detroit Three and the Japanese transplants. Ron found other aspects of the contract where it would be easier to ask for cuts. Apart from cash income, UAW members enjoyed a gamut of benefits that added substantially to the automakers' costs. Another big burden for the automakers was the UAW work rules. These required both GM and Chrysler to maintain scores of job classifications. A worker at Chrysler could not so much as tighten a screw if it was not in his job description.

Ron focused on expanding a provision that new employees—so-called tier-two workers—could be hired at a lower wage. This category had been created in 2007 as a way to lower Detroit's labor costs without penalizing existing workers. It allowed for a limited number of new workers to come in at $14 per hour, versus about $28 per hour that existing UAW members earned. But because the automakers had been mainly laying off rather than hiring, few tier-two workers were actually on the domestic payrolls. To bring Sergio's projected costs down, Ron persuaded Gettelfinger to raise the limit on the number of tier-two workers that Chrysler would be allowed to hire. Of course, for Sergio's costs actually to decrease, Chrysler's business would have to grow enough to need new workers.

As the third week of April ended, an agreement between Fiat and the UAW at last seemed within reach. Ron knew he had to close the deal—hardly a given with Sergio, who as a "volunteer" was liable to back away again at any time. But Ron realized that he had a trump card to play.

He went to Sergio and said, "How about if I can promise you labor peace? Not just through this contract but through another contract after that? If I can tell you that there won't be a strike, that's especially valuable, because you want to change the culture." Ron offered other goodies as well. These included a commitment to keep wages frozen for the life of the contract, through 2011, and a commitment to have any open issues at the end of the next negotiation be subject to binding arbitration based on maintaining competitive wages with the transplants. Yet even with these enticements, Sergio was hard to pin down. First he said yes, then no, and then he decided to go back to Italy for the weekend to think about it. There he had been hailed by the Italian media as a conquering hero for Obama's decision to designate Fiat as the savior of once mighty Chrysler. Finally, near the end of the weekend, Sergio called Ron and authorized him to make the proposal to Gettelfinger.

Ron sat down with the UAW chief the following morning. He knew that his "ask" would not seem quite as big to Gettelfinger as his "give" had seemed to Marchionne because the union chief was operating under the mistaken assumption that the conditions of the
TARP
loan agreement, including the no-strike clause, would automatically stay in effect. Nonetheless, Ron also knew that he was asking the UAW to make the biggest concessions in its history. "This is the best I can do," Bloom told Gettelfinger, outlining the terms he'd given Sergio and using every ounce of his credibility as a labor negotiator. "I know you don't want to do this deal, but then we need to go home and Chrysler is going to liquidate." Gettelfinger thought about Bloom's proposal for an hour and agreed.

A
S
THE CHRYSLER-FIAT
deadline neared, Harry Wilson started pushing a very smart, very different alternative. It was interesting enough to do more than distract us. It made us question: Was Fiat really the partner we wanted for Chrysler? We were certainly frustrated with Sergio, who kept trying to recut the deal and whose refrain had become "I don't have to be here, you know." But it wasn't just that which made the plan proposed by our determined colleague compelling. Harry offered a way to save hard-hit American taxpayers a lot of money, give GM a better shot in the long term, and still avoid a full-scale Chrysler liquidation.

Of course we'd already dismissed the idea of a GM-Chrysler merger, but what if, Harry suggested, GM were to take over Chrysler's top brands? He had always believed that the taxpayer and the U.S. auto industry would be better off if Chrysler LLC disappeared. That was still his logic as he sketched out what we soon called Plan B, although in my mind I occasionally bumped it up to Plan A.

In Harry's scenario, GM would absorb the best parts of Chrysler and the rest would be eliminated in an orderly way—goodbye outdated product lines, obsolete plants, unneeded dealerships. At the top of the list of assets worth saving was Jeep, a brand known all over the world and whose customers stayed loyal despite the fact that the products were less than innovative and often lagged behind both international and domestic rivals in handling and fuel economy. Some in GM saw Jeep becoming a poor man's Range Rover overseas.

Chrysler also remained the top American maker of minivans, the category it had pioneered and once dominated. By this time, its minivans were built in Windsor, Canada, so the jobs were more Canadian than American. And the vehicles weren't so great—comparably equipped Honda Odysseys and Toyota Sierras could command thousands of dollars more at retail. But from GM's standpoint (the company having long since abandoned its own woeful minivans) car-shopping soccer moms would at least consider Chryslers.

Finally, there were Dodge Ram pickups, like those we'd watched being built during our plant tour in March. Ram was the reddest of red-state brands, prized for its testosterone image.

By mid-April, Sergio's outbursts were becoming extreme. He made a major issue of the fact that, along with a small network of Chrysler dealers and distribution centers in Europe (complete with hundreds of millions of dollars of valuable inventory), Fiat would be taking on responsibility for 1,200 employees. Though he'd been reminded several times that the people were part of the deal, when the subject came up once more, he erupted as though he were being bilked. "Do you think I am fucking stupid?" Sergio screamed at his own right-hand man, Alfredo Altavilla. "That is not why I fucking brought you here!" The tirade got so bad that Ron and others quietly got up and left.

In another city, Harry was presenting his idea to GM manufacturing chief Gary Cowger, who called Fritz Henderson. Fritz—a chief proponent of a GM-Chrysler merger in the past—was now CEO and in a position to act. On April 16, he phoned me to signal GM's interest. We sent Brian Osias and Clay Calhoon back to Detroit to develop the concept. For the young bankers, this meant round-the-clock number-crunching for the second straight weekend.

The resulting analysis was a sobering reminder of how much we were about to gamble on Fiat's rescuing Chrysler. Plan B required substantially less government funding up front. In place of the $8 billion of
TARP
money that was slated for Plan A, GM would need less than $4 billion to acquire the brands—$2 billion to buy them from Chrysler and the balance for additional working capital. This represented an immediate saving of $4.5 billion.

What was more, just as Harry had argued in mid-March, eliminating Chrysler as a competitor would add substantially to GM's value. By 2014, its profits would be billions of dollars higher, meaning substantially greater value for the Treasury's investment in GM, potentially $8 billion to $12 billion more.

"This is just wrong," Ron Bloom burst out. "This is not what I came here to do!" Team Auto had convened in Larry Summers's office on the morning of April 21. Ron had arrived in a buoyant mood from having at last succeeded in uniting Sergio and the UAW. But his equanimity dissolved when Larry revealed himself as willing to hear Harry out on Plan B.

"The President gave us a direction," Ron countered emphatically. "He told us to save Chrysler. If we want to have a backup, that's fine. But we shouldn't make Plan B into Plan A." Next, Ron reminded us that the job losses under Plan B, though not as great as in a full liquidation of Chrysler, would still be severe. And he noted that many of the jobs saved would be minivan assembly jobs in Canada.

Always torn about saving Chrysler, I experienced new waves of ambivalence after Harry offered up Plan B. If Larry had been seriously interested in changing course, I would have happily seconded him. But despite his curiosity about the backup scenario, he gave no indication that Plan A was no longer Plan A.

After Ron cooled off, he concluded that "you can't beat something with nothing" and resolved to stay focused on getting the Fiat deal across the finish line.

Beyond the UAW agreement, there were other enormously complex issues to resolve. Under Matt Feldman's watchful eye, Chrysler and its team of lawyers were racing to complete the documents for an unprecedented use of the bankruptcy code. The company's filings—to be made on the morning of a speech by Obama that was currently being planned—were going to include more than twenty different bankruptcy petitions as well as the corporate documents to create a new Chrysler that would be the proposed buyer of the assets worth saving.

The majority owner of this new entity would be the
VEBA.
Fiat, the Canadian government, and of course the U.S. Treasury would also have equity stakes. (The unwanted assets would be left behind and liquidated by the old Chrysler, which would change its name to Old Carco LLC.) Matt knew that this aggressive use of Section 363 would provoke legal challenges, and wanted to be prepared.

Meanwhile, Brian and Clay, with twenty specialists from Cadwalader, were working out the particulars and prepping documents for Chrysler's deal with Fiat. Chrysler's finances were tangled, as you might expect of a huge business that had changed hands repeatedly. (In eleven years it had gone from public company to Daimler subsidiary to being majority-owned by a private equity firm.) Still to be negotiated were billion-dollar questions including Daimler's lingering commitments to the Chrysler pension fund, the disposition of loans made by the Canadian government to help keep Chrysler solvent, and so on. On all fronts, the effort was in high gear.

Chrysler's time was running out, and when the White House reserved a TV slot at noon on April 30 for a presidential speech, we felt the added heat. Already, presidential speechwriter Adam Frankel had begun trading talking points and drafts with Brian Deese. The idea would be for Obama to emphasize themes he had introduced before: the importance of America's automakers, the gravity of their problems, and the need for shared sacrifice by all stakeholders to make them viable businesses and avoid wasting taxpayer money.

All this would set a context for the Fiat-Chrysler solution. The President would play down the fact of Chrysler's going into bankruptcy; that was just a necessary step toward revival. Still worrisome was the possibility that bankruptcy would vaporize consumer demand for Chrysler cars and trucks and make the deal with Sergio a hugely expensive fiasco.