Manufacturing Digital examines the fall of GM.
By Ian Armitage & Ben Lobel
On June 1 2009, beleaguered General Motors, once a symbol of American economic might and dynamism, filed for bankruptcy protection, with debts totaling $173 billion. As the 101-year-old carmaker enters a new and uncertain era of government ownership, Manufacturing Digital gives the complete timeline right up until the very last, defining moments, climaxing in the bankruptcy of a behemoth.
2008
• October 24, 2008 - GM and Chrysler, which were discussing a possible merger, announce plans to cut jobs and close plants as the downturn in auto sales deepens.
• December 19 - $17.4 billion lifeline is given by the U.S. to Detroit carmakers. GM is expected to receive $13.4 billion and Chrysler $4 billion.
FEBRUARY, 2009
• February 17 - GM and Chrysler request nearly $22 billion in additional U.S. government loans.
March, 2009
• March 19 - The U.S. Treasury pledges $5 billion to aid auto suppliers.
• March 29 - GM CEO Rick Wagoner is forced out. His controversial tenure at GM ends as President Obama prepares to announce plans to help GM and fellow car giant, Chrysler. He is replaced by COO Fritz Henderson.
In an interview with CBS, President Obama calls on firms to do more to justify further aid. “They’re not there yet,” he said. He also commented that the U.S. auto industry could be “successful,” but that it has got to be “realistically designed to weather the storm,” if it is to emerge “lean, mean and competitive.”
• March 30 - Canada offers C$4 billion in bridge loans to the Canadian branches of GM and Chrysler.
APRIL, 2009
• April 7-24 - The European Investment Bank approves 866 million euros of loans to carmakers, while GM draws another $2 billion in government aid.
• April 27 - GM offers its final plan to reorganize outside bankruptcy. The plan targets cutting bond debt, shedding 21,000 U.S. jobs and emerging as a nationalized carmaker under majority control of the U.S. government.
• April 30 - Chrysler files for bankruptcy protection, saying it will sell its Chrysler, Jeep and Dodge brands into a new company to be owned by the government, Italian carmaker Fiat and Chrysler workers.
MAY
• May 14-15 - Chrysler says it will close 789 of its 3,181 dealerships from June 9. Meanwhile, GM drops up to 1,200 U.S. dealers.
• May 22 - GM borrows another $4 billion from the U.S. Treasury, taking the total government funding to keep it afloat since the start of the year to $19.4 billion.
• May 30 - Germany seals a deal with Magna, GM and the U.S. government to save GM’s European business from the bankruptcy of its U.S. parent. Magna will take over parts of the new European Opel activities from GM. Germany to provide 4.5 billion euros in loan guarantees. Magna to lend Opel 300 million euros to cover short-term liquidity needs.
• May 31 - Investors holding about 54 percent of GM’s bonds show support for a U.S. Treasury-brokered swap designed to speed way through bankruptcy.
BANKRUPTCY
• June 1 - A bankruptcy judge approves the sale of Chrysler assets to a group led by Fiat. GM files for bankruptcy.
President Barack Obama says the U.S. will provide $30 billion of additional taxpayer funds to restructure the company, so it can return to profitability. He called the deal “tough but fair,” adding it would “give this iconic American company a chance to rise again.” Obama stresses that he has “no interest in running GM.”
U.S. Government now owns a 60 percent stake in GM (effectively nationalizing GM), with the Canadian Government taking up 12.5 percent and GM’s unions 17.5 percent. GM bondholders hold 10 percent.
Restructuring is expected to drastically change GM, which is expected to be split in two – an ‘Old GM’, which will own all its bad assets, and a ‘New GM’, which will own the good assets. Some 21,000 U.S. workers are thought likely to lose their jobs at the firm.
GM’s main European business, Opel, and its UK brand Vauxhall, will not be affected by the bankruptcy protection move because their ownership has been transferred to a trust fund ahead of their sale to Magna International, which agreed to buy Opel and Vauxhall.
RAMIFICATIONS
The ramifications of the bankruptcy are that 21,000 of GM’s 61,000 hourly workers will indeed lose their jobs by the end of the year, as well as some 6,000 salaried staff. Thousands more in the car parts sector, dealerships and retailers that rely on GM for income are also expected to lose their jobs.
But, despite the inevitable job losses, Obama and industry experts claim that GM now has the right cost structure to compete globally, in what is a very competitive market. With the company saying it can make money even with auto sales staying weak, the question now is whether it can generate enough profit to free itself of government control, preventing government intervention in the day-to-day running of the company.
Ultimately, GM needs people to start buying its cars and trucks again – with sales worldwide at historic lows; this will be quite a challenge.
Consumers are buying Japanese and it is up to GM to convince buyers in the U.S. that its cars are as good as those made in Japan. As part of that, GM is working on bringing costs in line with Japanese automakers that have plants in the U.S.
Most economists expect sales to begin recovering toward the end of this year, rising to 12 million or 13 million in 2010 or 2011.
Any recovery for GM is predicated on selling cars that people want to buy. With consumer trends moving towards electric the question is, where next for the auto industry after the shocking demise of GM? Well, the clear progression of electric vehicles is picking up speed as Motor City looks to become the battery capital of the world, effectively “Battery City,” powered by lithium ion.