On This Day: GM declares bankruptcy- biggest manufacturing collapse in US history - June 1, 2009
(edited from article)
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General Motors declares bankruptcy the biggest manufacturing collapse in US history
June 1, 2009
At the White House, flanked by his economic advisers and cabinet secretaries, Obama reiterated that the government was a "reluctant" shareholder in General Motors, but said the alternative extending more loans would burden the new company with debt and would hinder its re-emergence as a viable company.
In return for its support, the Obama administration is likely to get a 60% ownership stake in the company. Canada's government, which is contributing billions of dollars in further help, will get 12.5% with unions and bondholders holding the rest.
Until it was overtaken by Toyota last year, GM was the largest carmaker in the world. But the company has been hobbled by a collapse in demand for new vehicles from the US market, where industry-wide sales of cars have dropped from 17m a year to fewer than 10m.
GM's US manufacturing workforce is to shrink from 113,000 three years ago to just 38,000 by 2011. Scores of factories across the US are shutting for an extended summer break and GM is slashing its network of dealership showrooms by 40%.
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https://www.theguardian.com/business/2009/jun/01/general-motors-bankruptcy-chapter-11
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The Auto Bailout 10 Years Later: Was It the Right Call?
Sep. 2018
In the end, the officials decided the nation could not afford another big economic hit, and that if measures were imposed to change leadership, business models and labor costs, then the costs would be worth it. Still, Goolsbee and Krueger noted that most of the bailout decision-makers did not know if it would work. They wrote that
we are both thrilled and relieved with the result: The automakers got back on their feet, which helped the recovery of the U.S. economy. Indeed, the auto industrys outsized contribution to the economic recovery has been one of the unexpected consequences of the government intervention.
For Wharton management professor John Paul MacDuffie, the idea of letting GM and Chrysler wither on the vine made no sense. It could have been a domino-effect collapse of the domestic auto industry. He adds that the bailout decision made sense partly to avoid a much deeper crisis, but also to make GM and Chrysler more competitive in the future. It was true that U.S. auto companies were badly managed for a long time. GM lost market share for 30 years. There were these energy crises and there were no fuel-efficient vehicles being made by the Big Three, over and over again.
MacDuffie also points out that a lot of political anger was in fact directed at first at the financial institutions that did contribute a lot to the financial crisis and took little penalty. The backlash bled over to autos, where it focused more on the parts of the country that were left behind in boom times. Imagine, he suggests, how bad the negative fallout would have been in some regions if those who said, let GM and Chrysler go bankrupt had gotten their way. There would have been a deep sense of abandonment while the coastal elites, the big banks were getting bailed out more quickly.
If government aid is accompanied by punitive effects on existing shareholders and executives, I am a bit less concerned about moral hazard. Going forward, however, I would make sure that creditors of too-big-to-fail firms take a larger hit. It would send a signal that counter-parties need to monitor risk as well and remove the credit-rate advantage of too-big-to-fail firms, Smetters adds.
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https://knowledge.wharton.upenn.edu/podcast/knowledge-at-wharton-podcast/auto-bailout-ten-years-later-right-call/
(edited from Wikipedia)
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General Motors Chapter 11 reorganization
The 2009 General Motors Chapter 11 sale of the assets of automobile manufacturer General Motors and some of its subsidiaries was implemented through Chapter 11, Title 11, United States Code in the United States bankruptcy court for the Southern District of New York. The United States government-endorsed sale enabled the NGMCO Inc. ("New GM " ) to purchase the continuing operational assets of the old GM. Normal operations, including employee compensation, warranties, and other customer services were uninterrupted during the bankruptcy proceedings. Operations outside of the United States were not included in the court filing.
The company received $33 billion in debtor-in-possession financing to complete the process. GM filed for Chapter 11 reorganization in the Manhattan New York federal bankruptcy court on June 1, 2009, at approximately 8:00 am EDT. June 1, 2009, was the deadline to supply an acceptable viability plan to the U.S. Treasury. The filing reported US$82.29 billion in assets and US$172.81 billion in debt.
After the Chapter 11 filing, effective Monday, June 8, 2009, GM was removed from the Dow Jones Industrial Average and replaced by Cisco Systems.
On July 10, 2009, a new entity completed the purchase of continuing operations, assets and trademarks of GM as a part of the 'pre-packaged' Chapter 11 reorganization. As ranked by total assets, GM's bankruptcy marks one of the largest corporate Chapter 11 bankruptcies in U.S. history. The Chapter 11 filing was the fourth-largest in U.S. history, following Lehman Brothers, Washington Mutual and WorldCom. A new entity with the backing of the United States Treasury was formed to acquire profitable assets, under section 363 of the Bankruptcy Code, with the new company planning to issue an initial public offering (IPO) of stock in 2010. The remaining pre-petition creditors claims are paid from the former corporation's assets.
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https://en.wikipedia.org/wiki/General_Motors_Chapter_11_reorganization
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