Rattner as Car Czar Probably Wouldn’t Be an Iacocca (Update1)
By John Hughes and Katie Merx
Jan. 14 (Bloomberg) -- Steven Rattner, who may become the U.S. car czar, would bring with him the financial savvy amassed during almost 25 years of deal-making.
What he wouldn’t bring is experience running an industrial company or building automobiles, and that bothers some analysts of Detroit’s woes.
“What the industry needs is a combination of two kinds of people: Lee Iacocca and Jack Welch,” said Gerald Meyers, a business professor at the University of Michigan in Ann Arbor. “This guy doesn’t seem to be either, so I’m worried.”
Rattner, co-founder of private-equity firm Quadrangle Group LLC, may be named by President-elect Barack Obama to oversee the restructuring of the U.S. auto industry, two people familiar with the matter said yesterday. The new administration hasn’t extended an offer yet, the people said.
The question of who becomes the so-called czar is critical to General Motors Corp. and Chrysler LLC, which last month got government pledges for as much as $17.4 billion in emergency loans to stave off bankruptcy. In return, they would subject their ideas for revamping operations, cutting costs and becoming financially viable to the approval of Washington.
Iaccoca led Chrysler back from the brink of bankruptcy after it received U.S. aid in the 1980s. Welch is the retired chief executive of General Electric Co.
The industry’s preference for an overseer with a mastery of its workings and culture was voiced by Bill Ford, executive chairman of Ford Motor Co., on Jan. 11 at a dinner with reporters covering the North American International Auto Show in Detroit. “It would be really helpful to have somebody in there who would take the time to have a deep understanding of our industry,” Ford said.
Not Seeking Aid
The company has said that it isn’t seeking government aid, at least for now. Ford spokesman Mike Moran declined to comment on Rattner yesterday.
“I’ve read about Rattner, as well as others, but I simply don’t know if there’s any merit to any of these people being actually considered,” Fritz Henderson, GM’s chief operating officer, said yesterday. He said the company hadn’t heard that Rattner was a possible choice.
GM’s 8.375 percent bonds due in July 2033 fell 1.5 cents to 18.5 cents on the dollar, yielding 45.3 percent yesterday, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority. The bonds have lost three quarters of their value in a year.
Chrysler Can’t Comment
“We cannot comment on any potential appointees,” said Shawn Morgan, a Chrysler spokeswoman, in an e-mail.
A spokesman for Rattner declined to comment, as did Jen Psaki, a spokeswoman for Obama’s transition office.
The United Auto Workers union, which faces negotiations with the automakers as they seek lower labor costs, didn’t respond to an e-mail seeking comment.
The 56-year-old Rattner started Quadrangle, an investment firm focused on media deals, in 2000, with three of his colleagues from what was then Lazard Freres & Co.
A former New York Times reporter, Rattner started Morgan Stanley’s media acquisitions group in 1984, where he worked with clients such as Comcast Corp. He moved to Lazard in 1989, where his group won assignments including the $11.5 billion sale of McCaw Cellular Communications Inc. to AT&T Corp. in 1994.
Private-equity firms pool money from investors such as pension funds and endowments and use those funds, usually along with debt, to buy companies. While they own them, they typically look for ways to improve profits through cutting costs or boosting sales, selling the companies or taking them public for a profit several years later.
Rattner’s Skills
Those skills may make Rattner a better choice than his critics think, said Steven Kaplan, a professor at the University of Chicago Booth School of Business who teaches about private equity.
“Private equity investors are good at negotiating and they’re very good at restructuring,” Kaplan said. “If you’re a good private-equity investor, it’s not crazy to think you’d be good at this job.”
Treasury Secretary Henry Paulson is in effect the car czar now, overseeing administration of the loans, until Obama takes office and puts his own person in place.
House Financial Services Chairman Barney Frank, a Massachusetts Democrat, proposed legislation Jan. 9 to create a “designee” to oversee the program without requiring that the job be housed in the Treasury Department.
Czar Idea Flawed
The very idea of a car czar is flawed, said Louis Lataif, dean of Boston University’s School of Management.
It is “hopelessly naïve that one person, however brilliant, is going to sit in Washington and make the car companies something they are not,” said Lataif, a former Ford executive. “To be determining strategic priorities of the companies is really a stretch.”
U.S. Senator Bob Corker, a Tennessee Republican who tried to broker compromise legislation on the bailout that failed in the Senate, said he also opposes the notion.
“I’ve never really been in favor of the idea of a car czar,” Corker said while touring the North American International Auto Show in Detroit yesterday. “Companies have boards to direct them.” He said he hadn’t heard of Rattner and had no opinion on him.
Chrysler’s majority ownership by private-equity firm Cerberus Capital Management LP may raise conflict-of-interest questions for Rattner. Cerberus is among the lenders to Alpha Media Group Inc., one of Quadrangle’s holdings.
Alpha, publisher of magazines such as Maxim, is working with its creditors on a potential restructuring involving a $125 million loan from financiers including Cerberus.
Auto Sales Fall
U.S. automakers are struggling after domestic sales last year fell to 13.2 million units, the lowest level since 1992. GM, the biggest U.S. automaker, and No. 3 Chrysler had said they would run out of operating funds as soon as last month without the aid. President George W. Bush stepped in after Senate Republicans refused to take up a House-passed rescue.
The automakers have until March 31 to meet the conditions of the loans, including demonstrating they have a plan to become profitable, or be forced to repay. A progress report to the Treasury Department is due Feb. 17.
Quadrangle Asset Management handles the personal and philanthropic finances of New York Mayor Michael Bloomberg, the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.
-- With reporting by Jason Kelly in New York and Keith Naughton in Detroit. Editors: Larry Liebert, Joe Winski
To contact the reporter responsible for this story: John Hughes in Washington at jhughes5@bloomberg.net
Last Updated: January 14, 2009 09:29 EST |
