How General Motors Was Really Saved

http://www.forbes.com/sites/danbigman/2013/10/30/how-general-motors-was-really-saved-the-untold-true-story-of-the-most-important-bankruptcy-in-u-s-history/

by Shivetya • 13 years ago

62 44 13 years ago

forbes.com

mattzito• 13 years ago

Interesting article, but it seems somewhat disingenuous/self-serving/self-aggrandizing to have the architect of the final plan write the article. I'd much rather see a professional journalist interview and analyze the situation, e.g. the book "Game Change".

sxcurry• 13 years ago

Agree. Also, be sure to consider the source - Forbes. Hardly the bastion of unbiased journalism.

zik• 13 years ago

TL;DR anyone?

foobarian• 13 years ago

Richard Crenna shows up at a retired corporate consultant's cabin and implores him to return help save GM. He does so using an innovative restructuring which the GM board chooses at the very last minute. Obama calls the GM CEO a failure, but in fact the guy is awesome. When it's all over the consultant returns to his cabin and broods out the rest of his days.

davideous• 13 years ago

Summary:

The author of this article came out of partial retirement to construct a novel bankruptcy plan for GM, which is what GM used.

The normal route would be for GM to file bankruptcy and have the court approve a restructuring. This restructuring plan would be fought over by creditors, and GM would be "dead in the water" while this was happening and loose market share. The author asserts this would have been a death blow to the reorganized GM.

The novel plan was to split GM into two companies, "OldCo" and "NewCo," either before or after filing for bankruptcy (the article was not very clear). NewCo would emerge from the bankruptcy as the new GM, and OldCo would be liquidated. The bankruptcy process would complete faster as the restructuring plan was already "set" by splitting into two companies.

There was internal debate in GM about this plan. A more standard bankruptcy was also being prepared. The Obama administration, in providing funding to GM, decided for the NewCo/OldCo plan and also ousted the CEO of GM.

This article is written by the author of the NewCo/OldCo plan, so it may be self-serving.

The article spends more time describing the process of and drama around creating the plan than the details of the actual plan.

[edit for clarity and typos]

mynameishere• 13 years ago

Thanks for the summary. As soon as I realized this was written by the guy who came up with the plan, with him trumpeting his great success, I stopped reading. Was there anything about how bondholders were robbed to pay off the union?

Also:

General Motors, the most important industrial company

What the hell, Forbes? Good god, if GM hadn't existed, nothing would have changed. Ford or Chrysler or AMC or whoever would have filled their shoes. Big deal.

mhurron• 13 years ago

What the hell, Forbes?

It's not Forbes, at least not the Forbes anyone would have expected anything decent from.

Whenever you see a Forbes url like forbes.com/sites/USERNAME/blah... you are just reading some guys blog on forbes.com

I don't know that there is really any resembling research and an editor at Forbes any more.

parasubvert4• 13 years ago

"What the hell, Forbes? Good god, if GM hadn't existed, nothing would have changed. Ford or Chrysler or AMC or whoever would have filled their shoes. Big deal."

That's a very ignorant statement.

General Motors and Alfred Sloan had a massive impact on the way that organizations were designed and managed for over 50 years - they were the first to ever systematically design and execute a managed, decentralized organization of that magnitude.

Peter Drucker's 1946 classic "Concept of the Corporation" was the first major study of a large corporation (GM) and a deep analysis of the implications that the new "society of organizations" would have on our culture, politics, and lives. Sloan's "My Years at General Motors" in 1964 was a management treatise that was blueprint through at least the early 80s.

Others would have filled their shoes, but history would be tremendously different.

wikiburner2• 13 years ago

Was there anything about how bondholders were robbed to pay off the union?

I'm genuinely confused as to how this went unchallenged. Even if the bankruptcy of G.M. resulted in pennies on the dollar, those pennies still belonged to the share and debt holders, rather than their being arbitrarily wiped out by the government in order to benefit the union.

Were there/Are there any lawsuits to address this?

monkeyspaw• 13 years ago

The summary is very much appreciated. I read the first two pages of the article, had barely gotten any real information other than the author's personal and biased experience.

The whole thing felt very self serving and not very informative.

bcoates• 13 years ago

Huh, and I though GM was saved by the government giving them $50 billon dollars to play with, of which they managed to lose $10 billion. I guess the success criteria was that they didn't lose all of it?

http://www.nbcnews.com/business/u-s-reports-9-7-billion-loss...

victoro• 13 years ago

Yea this guy really trivializes the fact that GM got a $50 billion dollar loan on incredibly favorable terms from the USG when the banking industry was reeling. No matter how brilliant his plan was it would have all amounted to nothing had they not gotten that money, so congress/the Obama administration (and even the Bush administration) can take all the credit they want.

gaius• 13 years ago

That's why GM means "government motors", then again Tesla is no better. Maybe it's time for America to get out of the auto manufacturing business altogether, just like Britain did. We do still have factories here mind; they're just owned by people like Honda.

glhaynes• 13 years ago

The obvious success metric that springs to my mind is whether the outcome was positive for the United States in comparison to our best estimate of what would have happened if GM had ceased as a going concern because the government hadn't given them that money "to play with."

parasubvert4• 13 years ago

GM did not lose that money, that was the money lost on government stock sales.

The government chose to sell its shares underwater for political reasons. Americans, unlike Europeans and Canadians, don't long tolerate partially nationalized companies, even if it makes them money.

The $10b loss is probably a lot smaller than the impact on the deficit if GM were allowed to go bankrupt. Keep in mind that most US deficits these past few years were not due to the stimulus, TARP, or any Obama legislation - they were due to the automatic stabilizers (medicaid, EI, food stamps, etc.) that have been law for decades, and skyrocketed with the financial crisis due to the vast numbers of people (over 1.5% of the entire US population) dropping out of the labour force between late 2008 and late 2009. It's up to 2.8% now.

yetanotherphd3• 13 years ago

there is no such thing as "underwater" when it comes to stocks. In a big liquid market, like the stock market for big companies, the price reflects the true value.

judk2• 13 years ago

Did you forget to count the wars?

AndrewKemendo• 13 years ago

I found a passage in this article apropos to the discussion last week about "greatness versus family" (https://news.ycombinator.com/item?id=6601421):

But for the past eight years I had backed away from business and my firm, AlixPartners, to care for my daughters after the death of my wife. I was essentially “retired.” But GM’s enveloping crisis and my friendship with Wagoner would bring me out.

I mentioned then, what I reinforce now: you will not be remembered widely (positively) for how good of a parent/husband you are. What Forbes published was not this man's struggle with grief and selfless devotion to his daughters. Alix did not write about how great of a father he was or how big of an impact he made on his children and family. The most important thing that Mr. Alix did was literally re-prioritize his time away from his grieving family toward the re-structuring of a massive organization.

If and when the time comes to choose between time with your family and time creating your impact on the wider world, forgoing the latter in order to do the former will ensure that your legacy dies only a few years after you do.

recuter• 13 years ago

Nobody reads Forbes. Jay Alix is not widely known now and will return to obscurity within his life time, you have funny ideas about legacy.

judk2• 13 years ago

I can also write a blog post about how great I am, securing my legacy for posterity.

chiph• 13 years ago

As a consultant with expertise in restructurings and turnarounds, I had completed a half-dozen assignments at GM over the years.

If he did that many restructurings at GM, something was seriously wrong with their fundamentals. The question is: Did those things change after the bankruptcy? I would hope that GM isn't still on the same path -- so far as their product offerings, they don't seem to be flailing around as much as they used to.

patrickg_zill• 13 years ago

GM produces poor quality vehicles and had poor management. They deserved to die but did not.

parasubvert4• 13 years ago

That's drastically oversimplifying things. GM vehicles are not uniformly poor quality (GMC trucks retain very good ratings, for example, as do many Chevrolets).

GM was illiquid due to the 2008 financial crisis, that set off a downward spiral of cash flow.

Letting GM die would have had massive systemic effects on the economy: suppliers and dependent businesses would have also gone bankrupt, and an estimated half million people would have been out of work. The combined lost GDP and higher unemployment, would have led to a much more severe downturn and a much higher federal deficit than the $10b lost on the bailout due to the automatic stabilizers for UI, food stamps, and medicaid, along with the reduced taxation revenue of individuals.

None of this would have made sense of GM were not a going concern (i.e. it couldn't make money anymore). Clearly it could, but it had massive issues that made it fragile. Now it is less fragile.

The government probably could have tried to hold onto some of the 60% of shares it owned for a profit, but politically, unlike Canadians or Europeans, a partially nationalized firm is not something Americans enjoy ("Government Motors"), so it made sense to take a loss early to save the political face.

bdcravens• 13 years ago

GM has had problems well before 2008. Perhaps that put them over the edge, but I recall reading articles around 2005 and 2006 talking about the performance of companies like Toyota and Ford versus GM.

drill_sarge• 13 years ago

GM vehicles are also very US focused. There is nobody who drives a Chevrolet or something here.

Don't forget they bought Saab and basically ruined the brand within a couple of years with poor quality and no innovation.

pwg• 13 years ago

Single page link for those who don't want to read an article that is broken into five pages:

http://www.forbes.com/sites/danbigman/2013/10/30/how-general...

eriksank• 13 years ago

Ok. So, they've managed to "save" that dinosaur from an instant death, delaying the inevitable to a next, future round of corporate heroics. What about all the smaller companies that had to dump their staff on the streets and did not get massive bailouts for their "salvation"?

Maven911• 13 years ago

I honestly dont understand what was the restructuring genius that he is self-alluding too. To me, he just happens to be in a lucky spot to be considered a restructuring expert without any real turnaround skills.

rl3• 13 years ago

Chrysler and General Motors conveniently eschewed existing product liability litigation during this time period, many of the cases involving plaintiffs whom were seriously injured for life.[1]

GM also tried and failed to shed all future product liability claims involving vehicles manufactured prior to the 2009 restructuring.[2]

Product liability cases in progress at the time were effectively wiped out; the entity being litigated against ("Old GM") suddenly became an empty shell ("Motors Liquidation Company"), and most claims were settled for pennies on the dollar.

Plaintiffs who wished to proceed with litigation against MLC despite this would have had their cases moved from their current jurisdiction (overwhelmingly state court) into the same jurisdiction as the bankruptcy proceedings (federal district court in New York). This made proceeding with litigation essentially futile: the introduction of prohibitive travel expenses, transition to the wildly different procedural and evidentiary standards of federal court, and an award sum (if any) a fraction of the original claim amount.

The best and perhaps most ironic part, however, was that the plaintiffs who did proceed would have the comfort of knowing that the defense attorneys assigned to destroy what remained of them and their product liability tort would be directly financed by the U.S. Department of the Treasury.

If anyone wants further reading, I recommend Steve Jakubowski's blog posts on the subject. They mostly chronicle his arguments before the bankruptcy court concerning successorship liability issues at the time, but he also does a really good job of putting a human face on the matter.[3]

1. http://money.cnn.com/2009/06/15/news/companies/auto_bankrupt...

2. http://www.marketwatch.com/story/gm-to-cover-future-liabilit...

3. http://www.bankruptcylitigationblog.com/archives/bankruptcy-...

forgottenpaswrd• 13 years ago

I thought they were saved by giving them $50 billion of the people of the US so they could invest in stock and then using the printing machine(Fed's QE) to make stock market fly.

Basically a transfer of wealth from the people to mega corporations, orchestrated by politicians.

Now the mega corporation is doing as badly as before, but it will take a while to waste such a big amount of wealth.

cromwellian• 13 years ago

Seems to rest on the notion of Obama "taking full credit". I don't think anyone believes Obama parachuted into GM to lead it like George Washington across the Potomac. Rather, they were extended a loan to give them time to turn around. Without executing on a plan, money alone would not have rescued the company, but without the government loan, they would have been doomed as no one in the private sector was capable of raising or loaning tens of billions in cash in 2008.

I'm guessing this will form a future right wing talking point in the redstate blogosphere, again, trying to rewrite Obama's term in office and diminish each one of his policy achievements. So now the talking point will be "It wasn't the government loan, it was these awesome plans hatched by the private sector." After all, we can't have any evidence of government policies succeeding.

It's a kind of white-washing, call it 'private washing', to downplay or trivialize any involvement of the public sector in the success of the private.

eftpotrm• 13 years ago

Exec summary: my plan to hide assets from creditors and prevent GM from honestly meeting is liabilities was the only thing that saved the company. The government's enormous pile of cash on absurdly favourable terms and without which it wouldn't have worked wasn't actually that significant.

Hmmmmmmmmm.

How General Motors Was Really Saved

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