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Exit the Czar

The car team prepares for GM's bankruptcy in May. From left, Harry Wilson, Ron Bloom, Rattner, Brian Deese, Gene Sperling, and Larry Summers.   

At one point, the creditors, including the largest banks in the world, seemed to like him, too. Of course, he’d known them for years. For Rattner, the fight over the future of the auto industry had the qualities of an intramural skirmish. These were his peers, his friends, fellow residents of the neighborhood. Their interconnections were as dense as a spiderweb’s. Joe Perella, head of a hedge fund with which Rattner later faced off, is president of Rattner’s co-op board. At Quadrangle, Rattner had been in a deal with Cerberus, a major hedge fund. That time, Cerberus had foreclosed on him; this time, Rattner would preside as Cerberus, which had a large stake in Chrysler, got fleeced.

Rattner didn’t take confrontations personally. He still didn’t run hot. Indeed, he seemed at times almost blandly rational, a technocrat. “He tended to stay very level and to focus on execution,” Summers says, which “fits with the culture of this administration.”

Rattner’s mien was in stark contrast to that of his partner Bloom, who gave the impression that the deal was a white-knuckled thriller. The Obama administration also values toughness—“Be tough,” the president had urged the task force—and Bloom was certainly that. He appeared emotional, even angry at times. “Ron Bloom,” says Greg Gardner, who covers the auto industry for the Detroit Free Press, “is like a very rational Jack Bauer”—the torture-adept counterterrorism agent played by Kiefer Sutherland in 24. “He won’t resort to weapons, but he’ll make everybody face the ugliest of realities. ‘This is it or we all die.’ ”

On February 17, both Chrysler and GM submitted viability plans, arguing that they could continue as stand-alone businesses. In the view of the task force, Chrysler and GM were like misbehaving adolescents; they’d caused this mess, and now their job was to not get in the way.

In the president’s March 30 speech, which the task force helped shape, President Obama outlined the plan that Rattner and his team had developed. Chrysler would be handed over to Fiat SpA, the Italian automaker whose technology, it was believed, could save Chrysler—and would be given only 30 days to close the deal. A couple of days earlier in the Oval Office, the president had quizzed Rattner on the chances of getting a deal done. “Fifty-one percent,” he answered. “Though in my experience, deals usually get worse, not better, over time.” (GM got 60 days to work out its problems.)

Bloom took the unions, his constituency, and muscled them into line. They took wage and job cuts and agreed to not strike for six years, among other concessions.

Rattner focused on his friends, the creditors. Jimmy Lee, vice-chairman of JPMorgan Chase and the creditors’ representative, had known Rattner for years. In this go-round, Rattner held all the cards, and Lee knew it. The government was the lender of last resort, and if it walked away, Chrysler and GM would be sold off for parts. Still, Lee started off aggressively, as he was obliged to. “We won’t accept anything less than $6.9 billion,” he said, which was the original value of the loans, although some of the current creditors had bought them for much less. “We should get a hundred cents to the dollar.”

Rattner almost laughed. “Jimmy, look. If you want the company, it’s yours,” Rattner told him. “If we can’t make a deal, then it’s your company,” which Lee knew he couldn’t afford. He also knew the administration still wasn’t sure Chrysler was worth saving—at one point, the task force was deadlocked 4-4 on the issue. “The president was clear: If it can’t work, it can’t work,” recalls Summers.

On April 2, Rattner convened a meeting in a conference room in the fortresslike Treasury Building. Jimmy Lee’s creditors’ committee attended in force. After a presentation, Rattner made his offer. He’d give the creditors $1 billion, the lowest figure he could say with a straight face. Then, as Rattner saw it, Lee went through a performance, mainly for the benefit of fellow creditors. “We have our rights, and we expect … ” he began with what seemed like conviction.

Rattner, as he told task-force members, knew that if he really wanted to stick it to Lee, for the pure sport of it, he could get a deal done at a billion and a half. It pleased him to be magnanimous. And he was content to let Lee extract a higher figure, in part, as Rattner saw it, to save face before some restive and increasingly angry creditors.

“Jimmy, it’s $2 billion, take it or leave it,” Rattner eventually communicated.

By then, $1 of Chrysler debt could be bought for $.14 on the open market. The market valued the $6.9 billion in Chrysler IOUs at about $1 billion. Lee, wily beneath an aw-shucks manner, countered, “Make it cash and we’ll take it.” He didn’t want to own any more IOUs, and he didn’t want to be in business with this bullying administration, which acted unilaterally anytime it saw fit.