One Year Ago Today, General Motors Filed For Bankruptcy

Edward Niedermeyer
by Edward Niedermeyer

One year ago today, General Motors took the “unthinkable” step of filing for bankruptcy. It was a seminal moment in the history of the American auto industry: the day that once-dominant GM finally shed its illusions, faced up to reality, and plunged into the cold, cleansing waters of bankruptcy reorganization. Or, to use a more accurate metaphor, it was pushed in. After decades of decline masked by decades of PR-driven denial, GM had literally lost the ability to self-correct.

The Presidential task force had to reject numerous “viability plans” and forcibly fire GM’s sitting CEO before sending the company to the place where countless previous GM execs said the company could never end up: Chapter 11. Oh yes, and some money changed hands too. Although the majority of the American public preferred to let GM go out of business rather than rescue it, one year ago today GM took the step into bankruptcy safe in the knowledge that $50b of taxpayer cash awaited on the other side.

Was it all worth it? Only more time will tell. While we count the days (and dollars) leading up to GM’s IPO, only one thing is certain: this can not ever happen again. Intervening in a company that shows no interest in fixing itself fundamentally alters the structure of incentives and disincentives that are the heart of our capitalist system. And, as Paul Ingrassia so aptly points out in his one-year-after piece in today’s Wall Street Journal [sub], the fact that directors from GM’s previous “board of bystanders” stand ready to benefit from their own stunning inability to take responsibility for the company they oversaw, is simply unforgivable. TTAC joins Ingrassia in calling for the resignation of all GM board members who have served since before GM’s bankruptcy.

A year ago today, Paul Niedermeyer eulogized the dying automaker, by noting

for decades, GM has not been an automaker, but a wealth and capital-destroying dragon. Some $200 billion dollars in equity has been wiped out. Throw in another $27 billion in debt gone tits-up, as well as “your” contribution of some $45 billion: well over a quarter trillion dollars up in smoke.

That this could have gone on for so long is nothing short of an economic crime. The bailout of GM may well have been justified in the shaky economic moment that it occurred, but only if those who bear responsibility for decades of wealth destruction are shown the door. GM’s new management has made some progress in this area, although the retention of certain personnel indicates that there’s always more work to be done. But management changes are (relatively) easy: returning strong corporate governance to a boardroom that was characterized by apathy and impunity isn’t. And GM’s claim to a second shot at the American dream counts on breaking completely from the past.

Whether GM ever pays back the taxpayer investment in it remains very much to be seen, but on this point GM can still repay taxpayers in the most meaningful way possible: by forcing directors to take ownership of the wealth destruction they oversaw, and to leave the company. Tens of billions of dollars may or may not have been enough to re-make GM into a strong competitive automaker, but it was certainly enough to buy a little accountability. And if it hasn’t, well then what did it buy at all?

Edward Niedermeyer
Edward Niedermeyer

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  • Stingray Stingray on Jun 01, 2010

    I don't know, but it strikes to me that most auto companies (and many big corporations) are still family-owned businesses. Even when they still have other shareholders Examples: Ford, PSA, Fiat, BMW, Tata, Geely, BYD, VW-Porsche, Toyota, just to name a few. I don't know if there are others. But that people seems to really care about the fate of their companies, having inherited them or created them. Very different from GM case, in which I think it's very difficult to know who was the "owner". And now it's even worse, it's state owned for the most part, and at least from my experience in this country (not US), if it's government property it doesn't belong to anybody and hence why care. I hope that both GM and Chrysler can go out of this successfully

  • Lorenzo Lorenzo on Jun 01, 2010

    @George B, the last thing I was recommending is another manufacturer. I was describing how a free entrprise system works, with new and existing companies rushing to fill a void left by a failed company. What I approved of is Henderson's downsizing of the company to a more manageable form. You're contending that the market wants GM to merge with somebody else, when GM is still too big. It has to downsize and sell off its far-flung operations in chunks small enough to be absorbed. Consolidation sounds good, but it would result in another "too big to fail" company that, like GM was, is too big to be managed properly. GM is the poster boy for large industrial complexes with too-high break even points, with its offerings spread too thin across too many segments, to maintain its mission, and too much managerial inertia to respond quickly to market changes. Toyota is seeing signs of that malaise, and VW is probably next to suffer. In horrific times, the big dinosaurs died off while smaller, more mobile and adaptable ones lived on to become birds. Likewise, a smaller company with a low break even point, excellence in a couple of segments and a focused management/engineering team nimble enough to respond to a changing market is capable of surviving the era of low sales that will probably exist for an extended period.

  • Lorenzo Heh. The major powers, military or economic, set up these regulators for the smaller countries - the big guys do what they want, and always have. Are the Chinese that unaware?
  • Lorenzo The original 4-Runner, by its very name, promised something different in the future. What happened?
  • Lorenzo At my age, excitement is dangerous. one thing to note: the older models being displayed are more stylish than their current versions, and the old Subaru Forester looks more utilitarian than the current version. I thought the annual model change was dead.
  • Lorenzo Well, it was never an off-roader, much less a military vehicle, so let the people with too much money play make believe.
  • EBFlex The best gift would have been a huge bonfire of all the fak mustangs in inventory and shutting down the factory that makes them.Heck, nobody would even have to risk life and limb starting the fire, just park em close together and wait for the super environmentally friendly EV fire to commence.
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