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THE GENERAL MOTORS BANKRUPTCY | BY DANIEL MCNULTY II

October 13, 2016

The General
Motors
Bankruptcy

By Daniel McNulty II

Events Leading Up to the GM Bankruptcy


In 2009, the sale of General Motors assets and some
of its subsidiaries was conducted through chapter 11,
title 11, US Code in the US bankruptcy court for the
southern district of New York. Below is an attempt to
put together all the pieces that led to this event, that
many would have considered unfathomable in decades
past.

Blood in the Water


GM was financially vulnerable well before the
automotive industry crisis of 2008 to 2009. In 2005 the
company reported a loss of $10.6 billion dollars. In
2016 it failed to both gain US government financing to
support its pension liabilities and form commercial
alliances with Renault and Nissan. In 2007 GM
reported a $38.7 billion loss, and finally in 2008 it saw
sales drop by 45%.

The Automotive Industry Crisis of 2008-2009


In November 7, 2008, GM projected that it would run
out of money by the middle of 2009 without the help
of government support, sales of assets, or a merger. By
November 17, 2008, GM was testifying about their
need for financial aid in front of congress. It failed to
gain funding both on that day and after proposing a
sustainability plan for the automotive industry on
December 2, but did receive a Bridge loan from the
Bush administration under the requirement of a
revised business plan.
In their plan, GM stated that it would need $4.6 billion
dollars in loans within weeks, on top of the $18 billion
dollars it previously requested, and an additional $16
billion to stave off bankruptcy. By February 19, 2009,
the company announced that its reserves were down
to $14 billion at the end of 2008, as it had lost $30.9
billion dollars over the year and spent $19.2 billion of
its reserves. It met with President Obamas auto task

There were attempts to sell GMs European operations


prior to their chapter 11 filing, but the company
ultimately decided against it.

force, saying it would not survive much longer without Bankruptcy


On June 1, 2009, Chevrolet-Saturn of Harlem, a GM
additional government loans.
owned dealership, filed for bankruptcy protection in
On March 30, 2009, President Obama declined to give Manhattan, followed closely by GM Corp., Saturn LLC,
GM financial aid, requesting that the company make and Saturn Distribution Corp. The Chevrolet-Saturn of
credible plans asserting that the company had been Harlem filing declared GM as a debtor in possession,
avoiding tough decisions, and proposing that and allowed GM Corp. to file for bankruptcy in the US
bankruptcy was the most promising way to reduce its Bankruptcy Court for the Southern District of NY, its
debts by allowing it to compel trade unions and preferred court, rather than its home state of
bondholders into settlements through the court Michigan. This preference was due to New York courts
system. GM Chairman and CEO Rick Wagoner was also expertise in bankruptcy.
forced to resign. While the unions agreed to the
preferential terms, GM bondholders rejected the The parties represented in court were GM, the US
governments first offer. Likewise, a bondholder debt Treasury, and the bondholders group from GM Corp.
One of the first motions filed in court was to avoid the
to equity counteroffer fell on deaf ears
leases on 7 corporate jets and the corporate hangar in
Detroit, claiming it was no longer valuable to the
Early Restructuring Efforts
US government officials suggested that, if they companys business but they were unable to escape
approved of the companys restructuring plans, they the lease in 2008.
would take on a 50% equity stake in GM. On May 31,
2009, it was reported that the US would become the
largest shareholder in the reorganized GM after their
bankruptcy filing and re-emergence from bankruptcy.
The government ended up investing about $50 billion
in GM and owning 60% of the new GM.

On June 1, 2009, the court gave interim approval to


GMs request to borrow $15 billion as debtor-inpossession funding, as GM only had $2 billion in hand
at that point. The US Treasury argued that, without the
assistance, GM would have no choice but to liquidate
their assets. Other motions passed on day 1 included
On March 29, 2009, the US Treasury committed to those to approve payments to key suppliers,
fund GMs warranty liabilities, up to $360.6 million. employees, and distributors who were in possession of
Two months later on May 27, 2009, the US Treasury goods manufactured for GM.
advanced a secured loan of $360.6 million to GM and
GM issued a note to the Treasury of $360.6 million, The plan for GMs bankruptcy was to auction off the
companys assets in a section 363 sale. Many of the
plus an additional $24.1 million to compensate for the
advance. This loan funded an account for a new special assets for sale were bought by NGMCO Inc., the new
purpose subsidiary of GM called GM Warranty LLC., GM formed by the US government, Canadian
government, the United and Canadian Auto Workers
specifically made to operate the warranty program.
GM contributed $49.2 million to GM Warranty LLC to unions VEBA fund, and the unsecured bondholders of
GM.
fund the program.

THE GENERAL MOTORS BANKRUPTCY | BY DANIEL MCNULTY II

The GM Bankruptcy Sales


The plan for GMs bankruptcy was to auction off the
companys assets in a section 363 sale. Many of the
assets for sale were bought by NGMCO Inc., the new
GM formed by the US government, Canadian
government, the United and Canadian Auto Workers
unions VEBA fund, and the unsecured bondholders of
GM. The selling company was called Motors
Liquidation Company, which was what GM was
renamed after the sale of its major assets, trademarks,
and intellectual property. It continued the bankruptcy
court proceedings that led to settling liability claims
against GM.

Sale of Hummer
GM announced that it would discontinue the Hummer
brand on June 1, 2009. In October of that same year,
the company had reached an agreement to sell their
stake in Hummer to Sichuan Tengzhong Heavy
Industrial Machinery Company Ltd. and a group of
private investors. This sale was expected to net GM
$150 million, and would have had manufacturing
continue in the plants GM had already used to produce
Hummers through June 2011, with possibility of an
extension till 2012. However, on February 24, 2010,
GM announced that the sale could not be completed
with Sichuan Tengzhong, as the Chinese government
disapproved of the deal. And though other companies
expressed interest in the Hummer brand, no sale could
be finalized and Hummer was declared defunct on May
24, 2010.

Sale of Saturn
On June 5, 2009, GM announced that the Saturn brand
would be sold to the Penske Automotive Group. Under
the deal, GM would continue to build the Vue, Aura,
and Outlook cars for Penske for 2 years. Yet, on
September 30, 2009, the deal fell through. This was
due to the fact that Penske could not reach a deal with
Renault Group to replace GM in producing Saturn
vehicles after the 2 years that GM promised to build
them were up. The Saturn branded was declared
defunct on October 31, 2010.

Sale of Saab
On June 16, 2009, it was announced that Swedish firm
Koenigsegg Automotive AB and a group of Norwegian
investors was looking to acquire the Saab brand from
GM. Under the proposed acquisition, GM would have
continued to provide architecture and powertrain
technology for some unspecified amount of time.
However, on November 24, 2009, the deal had
collapsed. Instead, Saab was sold to Dutch firm Spyker
Cars, now known as Swedish Automobile on February
23, 2010

363 Sale of Assets


On July 10, 2009, GMs operational assets were
transferred to Vehicle Acquisition Holdings LLC, which
then assumed the name General Motors Company. As
part of their reorganization plans, GM filed for
bankruptcy protection in Manhattan on June 1, 2009,
announcing $82.29 billion in assets. It was announced
shortly after that GM would be pulled from the Dow
Jones Industrial Average, and replaced by Cisco
Systems.
GM planned to reemerge as a less debt-burdened
organization after bankruptcy. The New GM was

formed by NGMCO Inc. purchasing the desirable assets


of the Old GM. After the purchase of these assets,
and the GM trade name, NGMCO Inc. was renamed
General Motors Company, and the claims of the
former stakeholders in the Old GM were to be
handled by the new entity Motors Liquidation
Company. The asset purchases were supported by $50
billion in US Treasury Loans, giving the US a 60.8%
stake in the new GM, with support also coming from
the Queen of Canada (11.7%) and the United Auto
Workers (17.5%). The remainder of the company was
held by the unsecured creditors.