An Interview with Steven Rattner

Steven Rattner, former U.S. Treasury Automotive Industry Advisor, oversaw General Motors and Chrysler’s bankruptcies and restructuring processes. Mr. Rattner is a founder of Quadrangle Group, an investment management firm. Prior to that, he served as Deputy Chairman and CEO at Lazard Frères, Managing Director at Morgan Stanley, and Vice President at Lehman Brothers Kuhn Loeb. A former New York Times correspondent, Mr. Rattner received a B.A. with Honors in Economics from Brown University, where he was awarded a Harvey Baker Fellowship for Graduate Study.

The Politic: Jerry Flint, Forbes Magazine’s senior automotive editor, recently characterized private equity giant Cerebrus, which took over Chrysler, of knowing “nothing about the auto business — and killing new models and old models, and stripping the company of talent.” Given your own private equity background and lack of experience in the automotive industry, what gave you the confidence to accept the job?

SR: I was confident because I, and the people who asked me to take on the job, felt that auto experience would certainly be additive, but overall, this was fundamentally a restructuring exercise rather than a management exercise.

The Politic: Last week you spoke about the difficulties in bringing top private sector talent into public service. Given the controversy over financial regulators such as Henry Paulson’s and Timothy Geithner’s Wall Street backgrounds, how can we make it easier for the best people to move back and forth between the private and public sector, while maintaining the integrity of the regulatory system and avoiding appearances of quid-pro-quo?

SR: I think the first thing that is needed is a broader acceptance of the principle that people from the private sector can make a big difference and a positive contribution. Right now, there is just anger and hostility, particularly toward the financial community, so people coming from those private sector areas lack, in many cases, the credibility needed to do an effective job. So the public and our leadership has to accept the notion that private sector expertise is valuable. Beyond that, I think that the government has a very rigorous set of compliance procedures to avoid quid pro quo or any financial conflict. These procedures are very burdensome, but they are appropriate and many people in the past have been able to comply with them and serve. I think the existing system with all its ethical restrictions should give people comfort that there is not a quid pro quo.

The Politic: Despite Chrysler’s weak product line and declining reputation, you are optimistic about the company’s future mainly because of Fiat’s stake. Given Fiat’s past failures in North American markets, why will this time be different?

SR: We cannot be sure about how successful Fiat will be, that’s what makes life interesting, but its a completely different company today than it was the last time it tried to market in the US. Different management, different products, different everything. We are cautiously optimistic about Fiat’s appeal among US buyers since I don’t think its reputation-related issues are still lingering.

The Politic: Can you talk about remaking a well-entrenched corporate culture like GM’s?

SR: It is extraordinarily hard and certainly is not yet completed. It is very much a work-in-progress. We’ll see how it goes. I will point out that there have been other examples where corporate cultures have been changed very dramatically, IBM is one that comes to mind. I would acknowledge that in most cases, that happens by bringing in at least 1 or 2 people from outside. We made the best decision we thought we could on management in terms of replacing former CEO Rick Wagoner with Fritz Henderson, another GM-lifer. We’re off to a good start, but it’s very hard to reshape an entire culture and I would not at all say to you that we’ve reached “mission accomplished” yet.

The Politic: A recent New York Times article, “Profits for Buyout Firms as Company Debt Soared,” discussed the destructive side of private equity. Amidst high unemployment and continued job outsourcing to third world countries, there has been a lot of frustration with private equity firms. Should these firms have broader social responsibility beyond maximizing profits?

SR: No, I don’t think private equity firms have any different objectives or mandates than other businesses. I don’t see why we single out private equity and impose on them some different objectives and conditions. The mandate of private sector business is to make money for their shareholders in a socially responsible way, and that is an important part of how our system works. If you contrast that with Europe, where companies operate under a whole series of other mandates, in terms of other objectives like employment levels that they’re supposed to try to achieve, you end up with what I think is a lose-lose situation for everybody.

The Politic: What timeline do you see for a General Motors IPO?

SR: I’m not sure yet. I think everyone wants it as soon as possible. There’s a lot of paperwork that needs to happen and they need to continue to improve their results, particularly in North America. I think realistically, we’re probably talking about a year from now, give or take a month or two.

The Politic: What’s been the most difficult part of the process?

SR: The most difficult part was the decision we had to make on whether or not to save Chrysler. I think we made the right decision, and so the lesson I took from that is you can look at as much analysis as you want, but you ultimately have to make a judgment call that follows your instincts. On Chrysler, our instinct was that it was just not a time where we could afford to put 300,000 people out of work in one day.

The Politic: What’s next for you?

SR: I am writing a book about my “auto-adventures.” It’s very time consuming and I’m trying to focus all my efforts on that. I really enjoyed having a foot in the private financial world and a foot in the public policy world, and if I can find some way to maintain that balance, that would get me excited.

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