Key figures: Fritz Henderson (CEO, General Motors), Barack Obama (US President), Steven Rattner (head of the Presidential Task Force on the Auto Industry)
Summary
General Motors Corporation filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York in Manhattan on the morning of June 1, 2009. Ranked by total assets, it was one of the largest corporate bankruptcies in US history and the fourth-largest Chapter 11 filing overall, behind Lehman Brothers, Washington Mutual, and WorldCom. The filing was the climax of the 2008–2010 collapse of the American automotive industry, in which plunging sales during the global financial crisis left GM — for decades the world’s largest carmaker — unable to meet its obligations.
The reorganization was orchestrated and financed by the US federal government through the Presidential Task Force on the Auto Industry, established by the Obama administration in February 2009. Rather than a conventional liquidation, the case used a government-backed “Section 363” sale to transfer GM’s viable operations into a new company, allowing the automaker to emerge from court protection after just 40 days.
Background
GM’s financial position deteriorated sharply during 2008 as the credit crisis throttled vehicle financing and consumer demand. In December 2008, the outgoing Bush administration extended GM and Chrysler approximately $13.4 billion in emergency loans from the Troubled Asset Relief Program (TARP) to prevent immediate collapse. After GM’s restructuring plans were judged insufficient, the Obama administration’s task force pushed the company toward a managed bankruptcy as the only viable path. CEO Rick Wagoner was forced to resign in March 2009 at the government’s request and was succeeded by Fritz Henderson.
The Bankruptcy and Restructuring
The US Treasury ultimately committed roughly $50 billion to the GM rescue, including about $33 billion in debtor-in-possession financing to fund the company through the expedited proceeding. Under the court-approved sale, a new entity (initially NGMCO Inc.) purchased the continuing operational assets of “old GM” and was renamed General Motors Company. When it emerged, ownership of the new company was divided among:
- the US Treasury, holding roughly 60.8 percent;
- the United Auto Workers retiree health-care trust (VEBA), about 17.5 percent;
- the governments of Canada and Ontario, about 11.7 percent; and
- old GM bondholders and other creditors, about 10 percent.
The remaining “old GM” was renamed Motors Liquidation Company to wind down unwanted assets and liabilities. As part of the streamlining, GM shed or sold several brands — Pontiac was discontinued, while Saturn, Hummer, and Saab were excluded from the new company. The new General Motors Company retained the core Chevrolet, Cadillac, GMC, and Buick brands and most overseas operations.
Emergence and Aftermath
General Motors Company emerged from bankruptcy on July 10, 2009, having shed much of its debt and a large share of its dealer network and workforce. The company returned to public markets in a November 2010 initial public offering — at the time one of the largest IPOs in history — through which the US government began divesting its stake. The Treasury sold its last GM shares in December 2013, recording a net loss of roughly $10–11 billion on the GM portion of the auto rescue.
Significance
The GM bankruptcy was a defining episode of the Great Recession and one of the most consequential government interventions in American industrial history. Supporters credited the rescue with preserving a domestic manufacturing base and an estimated hundreds of thousands of jobs across GM, suppliers, and dealers; critics questioned the use of public funds, the override of ordinary creditor priorities, and the precedent of state ownership of a major corporation. Together with the parallel Chrysler bankruptcy, it reshaped the US auto industry and became a central reference point in subsequent debates over “too big to fail” and the proper limits of federal economic intervention.
Sources
- General Motors Chapter 11 reorganization — Wikipedia
- A ‘New’ GM Emerges From Bankruptcy — NPR
- General Motors — Eye on the Bailout — ProPublica