Opinion

Felix Salmon

Who deserves the credit for GM?

By Felix Salmon
November 16, 2010

Andrew Ross Sorkin loves private equity.

Sorkin finally get around to responding to Malcolm Gladwell today, and he’s unimpressed. Here’s how he frames the question:

Can financiers ever do anything beyond financial engineering?

With General Motors planning an initial public offering for Thursday that values the once-left-for-dead company at more than $50 billion, the answer to that question is more than theoretical.

How did G.M. become one of the greatest turnaround stories, at the moment at least, in history?

You can guess where Sorkin ends up. While Gladwell gives a lot of credit for GM’s current health to Rick Wagoner, Sorkin dismisses Wagoner as the CEO under whom GM went bankrupt. Instead, he says, “the GM turnaround is ultimately an act of financial engineering”—the financial engineering that Steve Rattner takes lots of credit for in his book, and which Sorkin is happy to ratify as one of the greatest turnarounds in history.

The financial engineering at GM was difficult and impressive. But in principle it’s neither difficult nor praiseworthy to take an insolvent company, put it through bankruptcy, and let it emerge under the ownership of its former creditors and people who provided DIP funding.

Bankruptcy, in theory and in practice, is essentially just a change of ownership. It’s not easy, and it carries non-negligible costs; Rattner did a good job of minimizing those costs and therefore maximizing the value of the post-bankruptcy GM. But you don’t need PE honchos to orchestrate a bankruptcy filing and rid a company of its liabilities. And the main thing that Rattner did with GM was to lubricate the process with something over $50 billion in US taxpayer money, most of which went to pay off GM’s creditors, and much of which is unlikely to ever be repaid.

Rattner deserves praise for what he did. But so does Wagoner, and so do all the workers who have worked and who continue to work to actually make the cars that GM sells. The financial engineering might have been a necessary part of the turnaround process. But it wasn’t remotely sufficient.

Comments
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Judging from the post, Rattner takes GM + $50 billion, pays off the creditors and sells GM at IPO for … $50 billion? Sounds like Wagoner had it leveraged up to the hilt, with assets = liabilities, essentially equity = 0. So if the govt takes back the $50 billion from the IPO, are we not back to where we started?

Posted by Condorson | Report as abusive
 

How could anyone call GM a turnaround? They canceled billions of dollars in debt and got a $50B government bailout. Shareholders prior to this restructuring were wiped out. Effectively, the assets were sold to new shareholders, without going through bankruptcy.

Gladwell is delusional for giving credit to a guy who deserves nothing but blame, and Sorkin is wrong for labeling the sale of GM assets as a “turn-around”. Wagoner deserves no praise, only condemnation for presiding over the decline of what was once the biggest manufacturing company in the world. The workers deserve no praise, they show up and get a paycheck.

(Now I see where the “let’s give a trophy to every 8-year old kid who shows up for t-ball, no matter how little effort or skill they demonstrate” mentality comes from. And why that attitude of “I just have to show up” becomes part of their attitude towards work.)

There are no heroes in this story. Rattner’s success was a political one, not a financial win, and there are no heroes in politics, only self-serving, egotistical parasites. The wealth that GM represented was squandered, and Rattner’s ability to work with politicians to secure the bailout and restructure the company kept GM, its suppliers and dealers, from shutting down, and that is good, but let’s stop with the medals and awards. Helping prevent the loss of jobs and sales tax revenue was the least Rattner could do for all the damage he has caused by his financial engineering career.

Posted by OnTheTimes | Report as abusive
 

I would praise the guy who came up the name Smartnotes” for the billions of dollars of asset backed bonds GM marketed to widows and orphans as “safe” investments over the years. Imagine if they had called the “Dumbnotes.” Who would have bought them? And who, when the time came to apportion the pain, would have provided as powerless a victim for Rattner to step on so unremorsefully? Rattner is no hero in my book.

Posted by maynardGkeynes | Report as abusive
 

Well good thing the Govment stepped in to help this bloated old cow because now they can buy the new corporate jets they have their eyes on! The poor babies have been chartering them ’til now.

Fat cows are worth something. Bloated cows are not.

Posted by hsvkitty | Report as abusive
 

Gotta agree with OnTheTimes here. And why do we so easily forget that in 2006, under Wagoner, GM sold more cars than at any other time in its history . . . and lost $10 billion. This is no turnaround story, it’s a monumental failure of everything we believe in business and capitalism.

Posted by Curmudgeon | Report as abusive
 

GM is a typical example of a US company forgetting the rest of the world exists.

Once the US market had saturated, the only place to look for growth over and above replacements was the rest of the world. But what US focussed GM had not done for decades was notice that the rest of the world made cars too, and better ones than GM made.

So now GM has lost it’s early provider advantage in overseas markets. That means just one thing: there’s no more easy money. Management need to change their way of thinking fast or we’ll be revisiting this situation just a few more years down the line.

http://fifthdecade.wordpress.com/2008/12  /05/saving-the-american-auto-industry/

Posted by FifthDecade | Report as abusive
 

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