At its peak, General Motors controlled half the American auto market, but after decades of decline, it was finally brought to its knees by the recession and frozen credit markets, forcing the company into the arms of the federal government.

1. B Y S U Z Z A N N E U H L A N D
WHAT HAPPENED TO GM AND
HOW WAS ITS RECOVERY

2. WHAT HAPPENED TO GM AND
HOW WAS ITS RECOVERY
At its peak, General Motors controlled half the American auto market, but
after decades of decline, it was finally brought to its knees by the
recession and frozen credit markets, forcing the company into the arms of
the federal government. But the money the government gave to keep GM
upright came with big strings. The only way to get the savings the
carmaker needed from bondholders and its sprawling dealer network was
under the umbrella of court supervision.
Image courtesy of
Michael Kumm at
Flickr.com

3. CAUSES FOR FAILURE
The company's luck began to turn in the early 1980s. By the 1990s
it was facing some of its worst losses ever. These losses were
largely inspired by a brief recession. It made a short-lived recovery
before the turn of the century, but the 2001 terrorist attacks on the
World Trade Center and the onset of yet another recession caused
further complications for the company. General Motors was
financially vulnerable before the automotive industry crisis of 2008-
2009. In 2005 the company posted a loss of US$10.6 billion. In
2006, its attempts to obtain U.S. government financing to support
its pension liabilities and also to form commercial alliances with
Nissan and Renault failed. For fiscal year 2007, GM's losses for
the year were US$38.7 billion, and sales for the following year
dropped by 45%.

4. CAUSES FOR FAILURE
Suzzanne Uhland found some of the factors that ultimately drove General
Motors into bankruptcy, for example the unsuccessful lines of automobiles.
Everyone remembers successful automobile lines put out by GM, such as the
Corvettes and Pontiac GTOs. But the Vega and the Chevette certainly put a
hole in the company's bank account. GM was praised for providing health
care coverage and generous pensions to retired employees. However, once
they could no longer afford these payments, investors were not as happy with
the choice, and if they foresaw the sudden financial crisis, they would
probably never have agreed to these terms. These costs translated to a
couple thousand dollars a car, which of course was passed along to the
consumer. Furthermore, the innovative spirit was the driving force behind
GM’s success for over a century. When the new management began, it
ended up turning the company into a bureaucratic mess, and quality products
and new ideas ceased to be the priority. Also, many customers wanted to
purchase greener fuel-efficient cars such as hybrids, but GM did not place
much emphasis on those lines. And as GM was one of a few key players in
an oligopoly industry, they failed to respond to new players in the global
marketplace.

5. CHAPTER 11 AND RECOVERY
When the company filed for Chapter 11 on June 1, 2009, it wasn't only the
largest bankruptcy of the year for the U.S. retail industry, it was also the
fourth largest bankruptcy reorganization in the history of United States
business. Once filed, the U.S. government and the Canadian government
provided more than $30 billion to the company to continue operating. The
company sold its Hummer brand to Sichuan Tengzhong Heavy Industrial
Machinery Co. of China, and the Saturn brand to Penske Automotive
Group. 40 days later, General Motors emerged from bankruptcy protection
as a new company, which was majority owned by the U.S. Treasury. In
2015, GM went to court and argued that the company should be shielded
from current class action lawsuits related to vehicles produced before its
bankruptcy, which have been recalled for numerous defects. The
company was shielded from billions of dollars in claims related primarily to
defective ignition switches which were blamed for accidents and deaths.

6. CHAPTER 11 AND RECOVERY
The new General Motors is named General Motors Company LLC which
is separate and independent from the old corporation. The new company
retains four of its major brands: Chevrolet, Cadillac, GMC, and Buick. Also
the company is planning to keep 3600 out of 6000 of its US dealerships.
Lastly, the company is shutting down 14 of its US plants, which will
eliminate 20,000 of its 80,000 current employees. The General Motors
Company is now a smaller, restructured version of the former General
Motors Corporation. But some questions remain, like whether General
Motors´ latest cars are good enough. On the whole, the evidence is
positive. So far, dealers report strong demand for the new Chevrolet
Equinox crossover and the Opel Insignia-based Buick LaCrosse. Nor has
the company been forced into abandoning price discipline by the wall of
money thrown at the market by embattled Toyota. As GM’s cash ebbed
away in the desperate months before bankruptcy, spending on new
models was frozen and the pipeline urgently needs to be filled with
enticing new products.

7. CHAPTER 11 AND RECOVERY
The recovery for General Motors Co is gathering momentum
with improving margins, strong brands, new markets for high-
tech vehicles, and prospects for stronger profits in coming
years. GM said it will increase its return to investors by
stronger profit margins in China and North America, as well
as operating efficiencies and share buybacks. Finally, “the
savings through 2018 will more than offset the technology
and brand investments”, said GM.