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The Ugly Truth: GM and Chrysler Were In Worse Shape Than Many Thought

Published: Wednesday, 21 Oct 2009 | 12:04 PM ET

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By: Phil LeBeau
CNBC Correspondent

Almost 7 months after President Obama decided to save both GM and Chrysler by sending them through bankruptcy, it's becoming clear just how close the White House came to letting Chrysler go under and how little the auto task force thought of GM. Today, the former head of the task force, Steve Rattner, has spelled out his view of the events in Fortune Magazine. He's also addressing the topic at a speech in Washington, D.C.

GM & Chrysler
Some of what Rattner wrote should not surprise us. It's been well documented how Chrysler was a shell of a company. Were it not for the lifeline it received from the Bush administration at the end of last year, the automaker was certainly headed for bankruptcy, and possibly liquidation. But even after the Auto Task Force got involved with Chrysler and started looking at it's options for the automaker, there were some in the White house who said the best option was to let Chrysler go under. Were it not for the fact Chrysler failing would blow a hole in the economy and cause 300,000 people to lose their jobs, the President would not have signed off on a managed bankruptcy with Fiat taking control of the company.

CNBC Special Report - The Fall Of GM

As for GM, Rattner makes it very clear he found the executives and board of the automaker to be out of touch with what it needed to do to save itself. Rattner amplifies what critics have said for decades about GM: it was steeped in a culture that refused to change. Not surprisingly, Rattner was an advocate for removing former CEO Rick Wagoner and half the GM board. Even as the Auto Task Force was considering installing Fritz Henderson as GM's new CEO, Rattner had doubts about whether GM could change.

Since the bailout and bankruptcy, Fritz Henderson has talked repeatedly about making GM a leaner, more responsive company.

This morning on Squawk Box he reiterated that strategy saying, "It (GM corporate culture) has got to change it is one of the priorities that I have on my list one of the top priorities if you will how we change the culture."

If there's one thing to take away from Steve Rattner's comments, it's this: the problems of GM and Chrysler were allowed to fester too long. For that, the blame goes squarely on the previous board of GM and the people who run Cerberus Capital. Even as the automakers were hemorrhaging cash, they failed to move fast enough to address the situation. That ultimately left the federal government as the only option to save GM and Chrysler.