One Year Ago Today, General Motors Filed For Bankruptcy

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?