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How Many Investment Bankers and Campaign Aides Does It Take to Turn a Lug Wrench?

Posted by Larry Doyle on March 26, 2009 5:16 PM |

In light of the hundreds of billions of dollars allocated to the financial sector, I never thought for a second that Washington would not bail out Detroit. While details are being finalized, rest assured there will be tens of billions of dollars injected into the automotive industry.

The question regarding the automotive industry’s viability has always revolved around the level of annual sales. These sales had run at an annual rate of 16 million during the “good” years. Sales in 2009 are now projected in the 8-9 million range. How much does the industry need to downsize and what rate of sales are necessary in order to breakeven? Will the capital injected be the proverbial “good money after bad?”

There are so many variables in the automotive equation (rate of sales, merger possibilities, debt covenants, union and pension obligations, dealerships, autoparts suppliers) as to make the entire equation untenable.

How and where do you begin to get your arms around it? Build a team, tackle the issues, develop plans, and execute. What kind of team has been put together to tackle this task? The WSJ reports:

It’s clear the team is not yet ready to put forward a comprehensive fix. “It’s a steep learning curve that they’ve been climbing, and there is still a lot to do,” said Michigan Rep. Gary Peters, whose district in suburban Detroit houses hundreds of auto suppliers, a few days after meeting with the task force. “That’s why I suspect they’ll come out with some preliminary statements, and then get back to work.”

In session after session in a warren of offices at the Treasury Department, the team has sat through tutorials on dealer financing, studied basic data and debated the future of U.S. car sales. They have spent days trying to understand the complexities of the hundreds of companies that supply the car companies with axles, seats and other parts.

President Obama’s auto task force visited an assembly plant in Warren, Mich., in early March.
Steven Rattner, a former journalist-turned-investment banker, was picked last month to head the team. He reports to Treasury Secretary Timothy Geithner and Lawrence Summers, the chief White House economic adviser. Mr. Rattner compares the challenge to a complicated puzzle.

‘Rubik’s Cube’
“It’s like a Rubik’s cube, trying to untwist it and trying to get all the colors to line up,” he said in an interview. “So we’ve learned a lot about how car dealers work, and how companies get paid when they sell a car to a dealer, and why there are a certain number of dealers more than are optimal. Have we learned everything? Of course not, but I think we are learning what we need to learn to do this job.”

The team’s industrial expertise comes from Ron Bloom, a scrappy Harvard Business School graduate who gave up investment banking in 1996 to work as a top adviser to the United Steelworkers union. When Mr. Bloom’s aging 1997 Ford Taurus conked out a few weeks ago, he traded it for a green Mustang with 50,000 miles on the clock.

Several team members, such as Brian Deese, a 31-year-old former Obama campaign aide, are on loan from the White House’s National Economic Council. Three others specialize in climate change. The rest come from agencies such as the Energy and Labor departments. Backing them up are about 30 accountants and advisers.

Mr. Rattner dismisses the idea that his team may not have enough auto expertise to tackle the job. “We are not trying to run car companies,” he says.

Tutorials?….trying to understand the complexities?…Rubik’s cube? …have we learned everything? Of course not….steelworkers?….campaign aide? …climate change? …..accountants?

I have often heard it said experience is the best teacher, but with tens of billions of dollars on the line is this the time to be learning on the job? With all due respect, this group strikes me as very inexperienced and, as such, I think they and all of us will be learning and paying as we go!!

LD

  • fiscalliberal

    But of course – all the people working under Rattner and Bloom are the best and brightest- hmm – what department loans out its best and brightest. I am certain all will be well as Bloom is a Harvard business school graduate. Just as good as a imprimater from the pope.

    However we might think about the fact that the Automakers are pikers compared to the Wall Street and finance communities. So the damage will be relatively small.

    When it is all said and done, Obama is learing on the job. So why should it be different at the lower levels. We can think of it as part of the education program.

    And of course we will pay, but that will be printed money. Its all kind of like playing Monopoly.

    🙂

    • Larry Doyle

      well spoken….will you swap me Park Place for two railroads?

  • lizzy

    They seem to be a real funny money crew. The first thing is that they are a committee, something that rarely accomplishes anything. Does this committee to save the auto makers have any people from the auto industry on it, that might be a nice touch.

  • Larry Doyle

    I was shocked upon reading this story. I can understand a few business consultants and investment bankers; however, this crowd truly read like a catch all of politicalaides, campaign staff, and former investment bankers.

    Not very impressive. Pretty doubtful as to how rigorous the process can possibly be.

  • Frank Marshall

    outstanding thank you please keep it going I find it fascinating best to you and your family Frank Marshall

  • Larry Doyle

    Frank….glad you like my work and the site. Please visit and comment regularly.

  • JR

    To answer the original Question:

    Think you need a few MBAs to take out the torque wrenches to insure that the wheels don’t fall off the wagon. I say this simply because MBAs are widely recognized to be experts in the nuts and bolts of any operation they observe casually.

    Hopefully there will be at least 3 economists there also, if this is a night-time lug tightening operation. They will be able to inform us promptly if the gen set fails and the lights go out. I also hope devoutly that there will be one mechanic around to restart the set.

    Keep hammering, Larry. Love your work.

    Take Care






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