Welcome back to the Deep Dive. Today, we are
not just talking about a business story. We are,
I think, talking about a moment where the tectonic
plates of the American economy actually shifted.
Oh, absolutely. It's one of those where were
you when moments. But, you know, for the entire
industrial world. It really was. It was the end
of an era and the really messy, complicated beginning
of a new one. That's the perfect way to put it.
Messy is the word. So we are dialing the clock
back to June 1st, 2009. It's a Monday morning,
8 .800 a .m. Eastern Daylight Time. And the location
is Manhattan, which is, you know, a bit of a
clue right there. Right. Not Detroit. Not Detroit.
We're in the Southern District of New York. And
the headline flashing across every Bloomberg
terminal and every CNN ticker was just, it was
almost impossible to process. It was. General
Motors files for Chapter 11 bankruptcy. The Titan
falls. That was the sentiment everywhere, wasn't
it? It really was. You have to remember for decades,
I mean decades, the saying was, as GM goes, so
goes the nation. And here was the nation's industrial
engine, its biggest manufacturer, basically admitting
it couldn't pay for gas. It was out of road.
It was a cultural shock as much as it was a financial
one. I want to pause on the scale of this because
bankruptcy is a word we hear a lot. You know,
we hear it with retail chains or like. some tech
startup that burns through its cash. Sure, it's
almost common now. But this was different. This
was the fourth largest bankruptcy in U .S. history.
Right behind Lehman Brothers, Washington Mutual,
and WorldCom. That's the company it was keeping.
But here's the distinction, and I think it's
an important one. Lehman was a bank, you know,
abstract financial instruments. WorldCom was
telecom infrastructure and, let's be honest,
massive accounting fraud. Right. Ones and zeros
on a server somewhere. Exactly. GM was tangible.
It was steel, rubber, glass. It was hundreds
of thousands of human beings physically making
things you could touch and drive. It was the
real economy. That's what made it so terrifying.
The numbers are frankly nauseating. I mean, you
look at the filing, we're looking at assets of
$82 .29 billion. And that sounds like a solvent
company, right? That's a massive amount of stuff,
factories, brands, inventory. $82 billion, of
course. But that's only until you look at the
other side of the ledger. The liability column.
And that's where the story turns into a horror
movie. They were carrying a debt load of $172
.81 billion. Wait, say that again. $172 .81 billion.
So they were underwater by nearly a hundred...
billion. A hundred billion. It's a hole so deep
light can't even escape it. The math just doesn't
work. No. And the stakes weren't just about,
you know, shareholders losing money on the stock
market. If a software company goes under, OK,
the servers get turned off. A few people lose
their jobs. It's sad, but it's contained. This
was not contained. If GM went under, I mean,
really went under, as in full liquidation, you
are talking about 91 ,000 U .S. employees directly
on the payroll. And that's just the tip of the
spear. That's not even the real number to be
scared of. No, because then you have the thousands
of dealerships. Yeah. And these are often the
biggest tax revenue generators for small towns
all across America. They sponsor the little league
teams. They're part of the fabric of the community.
Then you have the parts suppliers. The guy's
making the seats, the glass, the tires, the wiring
harnesses. If GM stops buying, they stop producing.
The ripple effect was calculated to be just catastrophic.
It would have plunged the entire Midwest into
a depression, not just a recession. So our mission
for this deep dive is to do a full autopsy on
this event. We need to figure out two things.
First, how does a company that literally defined
American success in the 20th century manage to
get itself $100 billion in the hole? Right, because
that doesn't happen by accident. No, it takes
years of effort to lose that much money. That's
a good way to put it. And second, and this is
the part that I think is most misunderstood even
today, we need to understand the how of the rescue.
Because they didn't just file for bankruptcy
and reorganize like a normal company. No, they
didn't have time for normal. They pulled off
this incredible legal maneuver, a surgical Section
363 sale, that is still studied in law schools
and business schools today. It was a piece of
legal wizardry, controversial, aggressive, and
most importantly, incredibly fast. So let's start
at the beginning. Or I guess the beginning of
the end. Let's talk about the road to ruin. Because
I think the popular narrative is simple. The
2008 banking crisis happened. Nobody could get
loans to buy cars. So GM went bust. And that's...
That's too simple. It's letting them off the
hook, isn't it? Completely. The 2008 crash was
the bullet that finally killed the beast. But
the beast was already dying of a dozen chronic
diseases. It was already on its knees. You just
have to look at the financials from 2005, a full
three years before the Lehman Brothers collapsed.
OK, so 2005, the economy is good. The housing
market is booming. People are buying stuff. A
booming economy. Everyone else was making money
hand over fist. And GM in 2005 posts a loss of
$10 .6 billion. billion in a good year. In a
great year for the economy, it was a massive
red flag that nobody or not enough people had
attention to. Then you fast forward to 2007,
still pre -crash. What happens then? It gets
worse, a lot worse. In 2007, they post a loss
of $38 .7 billion. $38 billion in one year. How
is that even possible? Were they just setting
piles of money on fire in the parking lot? In
a way, yes. It comes down to what we call legacy
costs. This is the key to understanding the whole
mess. GM wasn't just a car company. It was something.
It was a massive insurance company and a pension
fund that just happened to make cars on the side
to pay for it all. Explain that. They had hundreds
of thousands of retirees. And through contracts
negotiated with the UAW in the 50s, 60s and 70s,
they were on the hook for full health care costs
for life and defined benefit pensions. And then
there was the famous jobs bank. Oh, we have to
talk about the jobs bank. This sounds like an
urban legend, but it was real. It was very, very
real. Through union negotiations in, you know,
arguably better times for the company, GM had
agreed that if they didn't have work for an employee,
say, a plant slowed down production for a few
months, they wouldn't lay them off. OK, so what
did they do with them? Instead, the employee
would report to a jobs bank. They would literally
go to a room on site, play cards, read the paper,
maybe do some community service, and they would
receive. nearly their full salary and benefits.
So they're paying thousands of people full UAW
wages to not build cars. For years. Because legally...
Under the contract, they couldn't fire them.
So when you ask how a company loses $38 billion
in a year, it's because your fixed costs, the
money you spend just to open the doors in the
morning, are astronomical. And their competitors
didn't have this. Not even close. Toyota or Honda,
building cars in new plants in the South with
non -union labor, they didn't have any of these
legacy structures. Their cost per vehicle was
thousands of dollars lower before they even turned
on the assembly line. And management knew this,
right? It's not like they were asleep at the
wheel, forgive the pun. They knew they were in
trouble. They did. They weren't idiots. In 2006,
they approached the government, the Bush administration,
trying to get financing specifically for those
pension liabilities. They wanted a bailout before
the bailout. And the government said no. The
government said no. Then they tried to form a
massive commercial alliance with Nissan and Renault,
headed by Carlos Ghosn at the time. What was
the idea there? To share platforms, share purchasing
power and economies of scale. Basically, let's
all get together and be too big to fail as a
group. And that fell apart. It dissolved completely.
There were cultural clashes, disagreements on
what each company was actually worth. It just
didn't happen. So GM is left alone, bloated with
these legacy costs, bleeding cash, even in a
good economy. And then 2008 hits. The Great Recession.
The perfect storm. So you have a company that
is already incredibly fragile. Then the housing
market collapses. Lehman Brothers collapses.
And the credit markets. They freeze solid. And
this is the crucial part to understand for any
car company. In the U .S., people don't buy cars
with cash. No, of course not. They buy cars with
loans. Right. And your local Chevy dealer doesn't
own all the cars on his lot. He finances that
inventory through a line of credit. So if the
banks stop lending to consumers and they stop
lending to dealers. The entire system just seizes
up. The customers stop buying. Sales didn't just
dip. they fell off a cliff. In 2008, sales for
GM dropped by 45%. 45%. Imagine your personal
paycheck getting cut in half basically overnight.
But your mortgage and your credit card bills
stay exactly the same. That's the liquidity trap
they fell into. So what did that do to their
bottom line in 08? In 2008 alone, GM lost another
$30 .9 billion. But the loss isn't the scariest
number. What is? The cash burn. Because you can
have an accounting loss but still have cash.
The scary number is that they spent $19 .2 billion
of their actual cash reserves just to keep the
lights on and pay those fixed costs. They were
burning through almost $2 billion a month. In
cash. Which brings us to November 7, 2008. The
warning shot. GM puts out a statement that is
terrifyingly blunt for a public company. They
basically said, we will run out of cash by mid
-2009. No, we will be unprofitable. No, we will
have zero dollars in the bank, the corporate
equivalent of sending out a flare. This brings
us to the political theater of it all. Section
2. The ultimatum and the political pivot. Because
this wasn't just a business problem anymore,
was it? Not a chance. It became a Washington
problem overnight. A massive, toxic political
football. And you had this awkward timing with
the lame duck session of the Bush administration
getting ready to hand over to the newly elected
Obama administration. Exactly. And in the middle
of this, you had the CEOs of the big three GM,
Ford and Chrysler, flying to D .C. to beg Congress
for money. And we have to talk about the Jets.
Oh, the Jets. This is a masterclass in how not
to read a room. It's almost unbelievable in hindsight.
So set the scene for us. What happened? The country
is in a full -blown panic. People are losing
their homes, their jobs. The stock market is
in free fall. Unemployment is skyrocketing. Complete
economic terror. Total terror. And into this
environment, these three CEOs, Rick Wagner of
GM, Alan Mulally of Ford, and Robert Nardelli
of Chrysler, each take their own separate private
luxury corporate jet to fly to Washington, D
.C. To ask for billions of dollars in taxpayer
aid. It's almost cartoonishly villainous. You
couldn't write it in a movie because people wouldn't
believe it. And Congress just unloaded on them.
They tore them apart. I remember watching it
live. Representative Gary Ackerman from New York
looked at them and said something like, there
is a delicious irony in seeing you three arrive
in private jets to tell us you're running out
of money. It just destroyed their credibility.
Any public sympathy they might have had, gone.
Completely. They were humiliated. The optics
were so bad that for the next hearing, they all
had to make a big show of driving cars from Detroit
to D .C. just to save face. A little late for
that, I think. A little bit. But despite the
PR disaster, the Bush administration, in its
final days, realized they couldn't just let GM
die on their watch right before Christmas. It
would have been a political nightmare. So they
stepped in. They did. In December 2008, the Bush
White House used TARP funds, the Troubled Asset
Relief Program, to provide a bridge loan. A bridge
to where? Ideally, a bridge to the Obama administration.
It was just enough cash to keep them alive for
a few more months. But it came with some serious
strings attached. Which were? They had to come
back by March with a completely revised business
plan that showed, credibly, how they could actually
be profitable in the long term. So fast forward.
It's now March 2009. President Obama is in office.
He's dealing with the banking crisis, the housing
crisis. And now this smoldering auto crisis has
dropped on his desk. And he forms the Auto Task
Force, led by guys like Steven Ratner and Ron
Bloom. Their job was to figure out if these companies
were even salvageable. And March 30th, the deadline
hits. GM submits their plan. They do. And their
plan basically was give us more money and we
promise we'll slowly cut costs over time. It
was more of the same, really. And what was Obama's
response? A hard no. A very public no. He went
on national television and rejected the plan
outright. He said it didn't go deep enough. It
avoided, and this was his phrase, the tough decisions.
And to prove he wasn't bluffing, he took a scalp.
A big one. A huge one. Rick Wagoner, the chairman
and CEO of General Motors. A man who had been
at the company his entire career worked his way
up from the bottom. What happened to him? The
Obama administration effectively demanded his
resignation as a condition for any further government
help. Yeah, that is profound. The president of
the United States firing the CEO of a private
corporation. It was completely unprecedented.
It sent a massive shockwave through the business
world. The message was crystal clear. If you
take the government's coin. You play by the government's
rules. And Fritz Henderson was installed as the
new CEO. Right. And his mandate was basically,
you have 60 days to come up with a plan for bankruptcy
or we're cutting you off. So the administration
was pushing them towards Chapter 11. Yes. The
president argued that Chapter 11 was actually
the most promising way to fix the company because
it gave them the legal power to force concessions
from bondholders and unions that they could never
get in a normal negotiation. But there was a
massive, massive problem with the idea of bankruptcy.
And this is something that terrified the auto
task force. It's the warranty guarantee problem.
Explain that logic. Why does a car warranty matter
so much in a bankruptcy? Think about it from
a consumer's perspective. You go to a dealership
to buy a new Chevy Malibu. It costs, say, $25
,000. You are making that investment, assuming
the car will run for 10 years, and if the engine
blows up next week, the company will be there
to fix it. That's a whole point of a warranty,
sure. Now, imagine that company is in bankruptcy
court. The news is full of stories saying they
might be liquidated, they might disappear forever.
Are you still going to spend $20 ,000 on that
Malibu? No way. You're terrified that your warranty
is basically a worthless piece of paper. Who's
going to fix my transmission if the company doesn't
exist in six months? Exactly. So the fear was
that the moment GM filed for Chapter 11, new
car sales would go to absolute zero. Instantly.
All revenue would stop. The company would die
on the vine in a matter of days. So how did they
solve that? It seems like a catch -22. The U
.S. Treasury did something truly extraordinary.
They explicitly committed to funding a government
guarantee of GM's warranty liabilities. They
set aside up to $360 .6 million and said, to
the American consumer, even if GM disappears
from the face of the earth, the United States
government will honor your warranty. That is
wild. So Uncle Sam became the mechanic of last
resort. It was the only way to build a firewall
and keep consumer confidence from completely
evaporating. It was a crucial and often overlooked
piece of the puzzle. OK, so they've solved the
warranty problem. They've got a new CEO. The
clock is ticking. This moves us to Section 3,
the surgical bankruptcy. This is the legal meat
of the story. This is where it gets really fascinating.
So June 1st arrives. They are going to file.
But they don't just walk into a courthouse in
Detroit. They pull what the sources call the
Harlem Maneuver. This is a great piece of legal
trivia. It's a classic example of what's called
venue shopping. So usually a company files for
bankruptcy where it's headquartered, which would
be Michigan for GM. Or where it's legally incorporated,
which for most big companies is Delaware. Right.
But GM's lawyers didn't want Michigan or Delaware.
They wanted the Southern District of New York,
Manhattan. They wanted the judges. Why? What's
so special about the judges in Manhattan? The
SDNY has a global reputation for handling massive,
complex financial collapses. Think Lehman Brothers,
WorldCom. They're sophisticated, they're experienced,
and more importantly, they understand what's
called the melting ice cube theory. The melting
ice cube. The idea that a bankrupt company is
like an ice cube sitting on a hot table. Every
minute it sits there in legal limbo, it gets
smaller, value disappears, assets degrade, customers
leave. So you need to move fast. You need to
move incredibly fast. And the SDNY judges are
known for speed. The new CEO, Fritz Henderson,
wanted this thing done in 60 to 90 days. But
to file in New York... GM needed a legal reason
to be there. They needed a venue connection.
They needed an address in Manhattan. Exactly.
They couldn't just pick it out of a hat. So on
the morning of June 1st, literally hours before
the main filing, a single tiny dealership, Chevrolet
Saturn of Harlem, filed for bankruptcy. Just
one dealership. One dealership that just happened
to be a wholly owned subsidiary of the Maine
General Motors Corporation. Ah, I see where this
is going. Once that small case was officially
open in a Manhattan courtroom, the Maine GM Corporation
could then file its own massive case as an affiliate
of the Harlem dealership. It was a clever, legal
backdoor way to get the judge and the courthouse
they wanted. That is incredibly sneaky and incredibly
smart. It's high stakes corporate law. And it
worked. They got their case in front of Judge
Robert Gerber, who was known for exactly this
kind of work. So they're in the right court.
Now, explain the surgical part, because most
bankruptcies we hear about. like a Chapter 11,
involve creating a plan of reorganization. Right.
And that's a long, drawn out process. You have
to sit down with all your different classes of
creditors, the banks, the bondholders, the unions,
the suppliers. You negotiate for months. Everyone
gets to vote on the plan. There are objections.
It can take years. It often takes years. GM didn't
have years. They didn't have months. They had
weeks. So they used a specific part of the bankruptcy
code, Section 363. And what does Section 363
do? Section 363 allows a company in bankruptcy
to sell its assets free and clear of any liens
or claims. It's usually used for small things
like selling off a factory nobody wants or a
division of the company. But GM used it differently.
GM used it to sell the entire company or at least
all the good parts of it. Wait, sell it to who?
They were broke. Who was the buyer? The buyer
was a brand new company created out of thin air
by the U .S. Treasury. And this is the absolute
core concept of the entire bailout. This is the
old GM versus new GM split. OK, let's break this
down very carefully for everyone listening. We
have two baskets. Exactly. Imagine two big baskets.
Basket A is new GM. The technical name was NGMCO
Inc., which stood for NGM Company Incorporated.
Very creative. Very creative. Into this new GM
basket, they use the section. The healthy organs.
The healthy organs. And then you have the ownership
of this new basket. Who owns New Diem? And this
is where the government comes in. Big time. The
U .S. Treasury took a 60 .8 % ownership stake.
The UAW Union's retiree health crust, the VBA.
got 17 .5%. The Canadian and Ontario governments,
who also put in bailout money, got 11 .7%. And
what about the bondholders, the people GM owed
billions to? They got the remaining 10%, and
they were furious about it, but they had to take
it. So the government literally owned the majority
of America's largest car company. Yes, hence
the nickname that stuck for years, government
motors. Now, what goes into basket B? The old
GM. Everything else. All the toxic waste. The
billions upon billions in unsecured debt. The
bad labor contracts. All the closed factories
that needed to be environmentally remediated.
All the pending lawsuits. All of that stayed
behind in the old legal entity. And what was
that old entity called? It was officially renamed
Motors Liquidation Company. And its stock ticker
symbol changed from GMGMQ to MTLQQ. And what
happened to that basket? What was its purpose?
It was left to die. Its only job was to exist
in bankruptcy. Corpsey Court for years, slowly
selling off whatever scrap it could. An old factory
for pennies on the dollar to pay back its creditors,
a tiny fraction of what they were owed. So what
about the shareholders? This is the critical
question. If I was a retiree and I own GM stock
on May 31st and this whole split happens on June
1st, do I now own stock in the shiny new GM?
No. And this is the part that burned thousands
and thousands of small retail investors who didn't
understand what was happening. What did they
own? If you own GM stock, you owned a piece of
the old GM. You owned a piece of the Motors Liquidation
Company. You owned a piece of the toxic wastebasket.
Correct. Which had no real assets and all the
debt. The company's management was legally required
to be explicit about this. They put out statements
saying there will be no value for the common
stockholders of old GM. Zero. But people didn't
believe it. People didn't understand it. They
saw the stock still trading under the new ticker
MTLQQ. And they thought, oh, GM is in bankruptcy.
It's cheap. It's a buying opportunity. It's bound
to recover. They were buying shares of a corpse.
That is just tragic. People buying the stock
thinking it's a dip when it's actually a funeral.
It really highlights the danger of not understanding
the complex mechanics of corporate bankruptcy.
The old stock was wiped out completely. And as
a final symbol of this shift. GM was kicked out
of the Dow Jones Industrial Average, right? Yes,
effective June 8, 2009. After decades as a bellwether
of the American economy, it was removed and replaced
by Cisco Systems. The old industrial economy
being replaced by the new tech economy. You couldn't
ask for a more perfect symbol. It was the end
of an era, written on the stock ticker. So the
new GM drives away, effectively debt -free. How
much debt did they actually shed in this process?
It was staggering. Old GM went into bankruptcy
with about $94 .7 billion in debt. New GM emerged
with only $17 billion. You just evaporated almost
$80 billion in liabilities. Poof. Gone. Left
behind in the liquidation company. Imagine you're
trying to run a race with a 100 -pound backpack
on, and suddenly someone just cuts the straps.
You are going to run a lot faster. But to run
faster... they also had to lose some weight from
the company itself. Which brings us to section
four, the garage sale. The brand restructuring.
This is the emotional part for the car lovers,
for the people who grew up with these brands.
It really is. Because for years, GM was defined
by its brands. Alfred Sloan's old strategy of
a car for every person purpose. A brilliant strategy
in the 1930s. But by 2009, it had become a mess
of overlapping, cannibalizing products. They
had too many brands that were all competing with
each other. So they had to choose the survivors.
They whittled it down to the core four. Chevrolet,
Cadillac, GMC, and... Buick. Those were the ones
that would form the foundation of the new GM.
Now, Buick, I feel like we have to address the
elephant in the room here. In 2009, in America,
Buick was seen as, well, a car for grandparents.
That's putting it kindly. So why keep that and
kill off a brand like Pontiac, which at least
had some history of excitement and performance?
The answer is one word, China. Really? Absolutely.
In China, Buick is a massive prestige brand.
It has a historical connection. The last emperor
of China drove a Buick. Sun Yat -sen, the founder
of the republic, drove a Buick. For historical
reasons, it was seen as a premium, almost luxury
status symbol. So while it was dying in the U
.S.? It was practically printing money for GM
in China. It was one of their most profitable
operations anywhere in the world. If they had
killed the Buick brand globally, they would have
destroyed their most important and fastest growing
overseas market. Wow. So the American lineup
of a classic American brand was saved entirely
by Chinese consumers. 100%. If Buick had to rely
only on the U .S. market for survival, it would
have been gone. No question. Okay. So let's talk
about the ones that didn't make it, the trimmed
fat. Let's start with Pontiac. The excitement
division. GTO, Firebird, Trans Am. So much history
there. So much. But what was the problem with
it by 2009? The problem was that for the past
15 years, it had just become rebadged Chevrolets
with extra plastic cladding and, you know, a
red dashboard. It had lost its soul. The G8 was
a great car at the end, but it was too little,
too late. And they just shut it down. Yeah. On
April 24, 2009, even before the bankruptcy, they
announced it was over. There was no buyer. It
was just going to be discontinued. A slow fade
to black. And then there's Hummer, the ultimate
symbol of the pre -recession cheap gas era. Hummer
was a victim of timing more than anything. When
gasoline is $1 .50 a gallon, everyone wants a
giant military -style truck. It looks powerful.
But when gas hits $4 a gallon and the economy
crashes. Driving a 9 -mile -per -gallon tank
to the grocery store suddenly looks ridiculous
and incredibly expensive. The market for it just
vanished overnight. But they did try to sell
it, right, to a Chinese company? They did, a
company called Sichuan Tangzong. which was a
heavy machinery maker. They had a deal in place,
but the Chinese government itself in Beijing
actually blocked the deal. They were trying to
push their domestic auto industry towards more
fuel efficient, environmentally friendly cars.
The last thing they wanted was to import a brand
that was the symbol of gas guzzling excess. So
the deal fell through and Hummer was declared
defunct in May 2010. And then there's Saturn.
I wonder if it's a bit. It was launched as the
different kind of car company. No haggle pricing,
friendly dealers. Saturn had a genuine cult following,
and they were so close to being saved. This was
a real nail -biter. What happened? Roger Penske,
the racing legend, the trucking and dealership
mogul, put together a deal to buy the brand,
the dealerships, everything. That sounds like
a dream team. Penske running Saturn would have
been amazing. It would have been fascinating.
But here's the snag. Penske is a dealer and a
logistics guy. He doesn't manufacture cars. He
needed someone to build the cars for him after
the GM supply ran out. Okay, so who was he going
to partner with? He was in deep talks with Renault
Samsung in South Korea to supply the next generation
of vehicles that would be badged as Saturns.
And the deal was apparently all but done. At
the 11th hour, the Renault board in France rejected
the deal. We still don't know the exact reasons
why, but with that, Penske's supply chain disappeared.
He had a brand and a dealer network, but no cars
to sell. He had to walk away. Wow. So Saturn
died because of a boardroom decision in Paris?
Essentially, yes. It was declared defunct in
October 2010. And finally, Saab, the quirky Swedish
jet fighter brand. Saab was just a long, painful
saga. GM sold it to a tiny, obscure Dutch supercar
maker called Spiker Cars. It was like a minnow
swallowing a whale. It never had a chance. And
it failed. It failed spectacularly. Saab limped
along for a couple of years and then went bankrupt
for good in 2012. So the landscape of the American
highway really changed. We lost a lot of variety.
We did. And GM also tried to scrub its own corporate
identity from the cars. Do you remember the little
GM chiclet? The little blue square logo on the
door panel? Yeah. Yes, the Mark of Excellence
logo that was on every single GM car, no matter
the brand. They stripped it off. They went for
a corporate invisible brand architecture. They
wanted you to buy a Chevy because it was a Chevy,
not because it was a GM product. The GM name
itself had become toxic. They were ashamed of
the parent brand and what it represented. Bankruptcy
and failure. That is a powerful marketing shift.
Yeah. To actively admit that your own corporate
name is poison. It was a necessary survival tactic.
Let's move to Section 5, the human and financial
cost. Because we talk about brands dying, but
brands don't have families to feed. People do.
This is the heavy part. The restructuring was,
I mean, it was brutal on the human level. Let's
start with the dealerships. Because these weren't
just corporate -owned stores. These are franchises,
family businesses. Right. A dealership in a small
town is usually a multi -generational, family
-owned business. It's the sponsor of the high
school football team. It's a pillar of the community.
And what happened to them? In the transition
from old GM to new GM, they used the bankruptcy
process to terminate hundreds of franchise agreements.
The dealership network was cut from about 5 ,900
down to about 5 ,000. So nearly 1 ,000 businesses
were just told, you're out. Basically, they received
a form letter in the mail saying their franchise
agreement would not be assumed by the new GM.
It was cold. It unleashed a fury of lawsuits
and political blowback. But legally, because
New GM was a new company, it didn't have to take
them. Devastating for those families. What about
the factories? They closed 13 plants across the
country. The number of U .S. plants went from
47 down to 34. And the workforce, the employees?
U .S. employee count went from 91 ,000 down to
68 ,500. So over 20 ,000 jobs. Evaporated. Gone.
And we are talking about, you know, minimum wage
gig economy jobs. These were high paying UAW
union jobs, good wages, pensions, health care,
the kind of jobs that support a middle class
life. When you lose 20 ,000 of those jobs, you
don't just affect 20 ,000 families. You devastate
entire zip codes. Towns like Flint, Pontiac,
Detroit, Lordstown, they took a massive, massive
hit that some of them still haven't recovered
from. And even at the top, they cut perks, right?
Like the corporate jets. Oh, yeah. One of the
very first motions filed in bankruptcy court
was to void the leases on seven corporate jets
and a private hangar at the Detroit airport.
After that PR disaster, the jets had to be the
first thing to go. So let's talk about the cost
of the taxpayer, because this is the question
I always hear at the bar. You know, we bailed
them out. Did we ever get our money back? And
the answer is it's complicated. It really depends
on how you do the math. There are two ways to
look at it. OK, let's do the simple math first.
Cash in, cash out. All right. The U .S. Treasury,
through the TARP program, invested a total of
$51 billion to create and fund the new GM. $51
billion. And in exchange, they got that 60 .8
% ownership stake. Correct. Then over the next
few years, as GM recovered and went public again,
the Treasury slowly sold off that stake on the
open market. They sold the stock back to private
investors. Right. They finished selling the very
last share in December of 2013. The total amount
they recovered from all those sales was about
$39 billion. Okay, so $51 billion out, $39 billion
back in. That's a loss of $12 billion. Correct.
The final direct cost of the GM bailout to the
U .S. Treasury was a loss of between $11 and
$12 billion. So the critics can point to that
and say, see, a waste of taxpayer money. We lost
$12 billion. They can, and they do. But, and
this is a very big but. You have to look at the
alternative. You can't just look at the cost.
You have to look at the cost of doing nothing.
What would that have been? The Center for Automotive
Research, a respected think tank, ran a study
on this. They modeled what would have happened
if GM had been forced into a full liquidation.
If they had just locked the doors and sold off
the parts. If GM had locked the doors, the cascade
of failures in the supplier network would have
been so severe that Ford and Chrysler would have
been forced to stop production, too, because
they all use some of the same critical parts
suppliers. So it wasn't just GM at risk. A GM
failure would have taken Ford down with it, even
though Ford didn't take a bailout. Exactly. The
entire North American auto industry would have
ground to a halt. The study estimated that the
bailout saved, directly and indirectly, 1 .2
million jobs. across the economy. A million jobs.
And it preserved $34 .9 billion in tax revenue
that those 1 .2 million workers and all those
companies would have paid. So if you do the math
that way, we spent $12 billion to save $35 billion
in taxes, not to mention avoiding a million people
on unemployment. That is the return on investment
argument. That it wasn't a gift to a car company.
It was an emergency investment in macroeconomic
stability. That makes the $12 billion loss look
like a pretty cheap insurance policy for the
entire economy. It does. But it doesn't make
it any less controversial, does it? Because the
government explicitly picked winners and losers.
How so? The bondholder's sophisticated investors
who lent GM money got crushed. They got maybe
10 cents on the dollar. Meanwhile, the UAW's
health fund was protected and given a huge stake
in the new company. That created a lot of legal
and political anger that last night. lasted for
years. People felt the rules of capitalism were
bent to favor a political constituency. So let's
wrap this up with the aftermath. Section six
emergence. How fast did this whole surgical bankruptcy
actually happen? This is the mind blowing part.
We talked about how the courts in New York move
fast. Yeah. The bankruptcy was filed on June
1st. The Section 363 sale of the assets from
old GM to new GM was approved by the judge and
closed on July 10th. 40 days. 40 days. 40 days
to restructure one of the largest and most complex
corporations in the history of the world. It
was absolute lightning speed. Unheard of. And
on July 11th, 2009, new GM wakes up. What does
it look like? It looks healthy. For the first
time in decades, it has a clean balance sheet.
It has that manageable $17 billion in debt instead
of nearly $100 billion. And it has over $40 billion
in cash in the bank taxpayer cash, mostly ready
to be invested in new products and technology.
And a new board of directors. The old guard was
gone. Completely gone. The government cleaned
house. Ed Whitaker, the former CEO of AT &T,
was brought in as the new chairman. They brought
in people from telecom, from finance, from outside
the auto industry. They intentionally broke up
the Detroit Old Boys Club. And they went public
again pretty quickly, right? The IPO? November
of 2010. Less than 18 months after emerging from
bankruptcy, they launched one of the biggest
IPOs in history. General Motors was back on the
New York Stock Exchange. But not the old stock.
No. A brand new ticker symbol. GM. The old ticker
symbol, MTLQQ, eventually flatlined to zero and
was canceled, disappearing forever. This whole
story, it's so complex, it feels like a heist
movie, but a legal one. That's a great way to
describe it. It was a rescue mission that used
the tools of a heist. They used the power of
the bankruptcy court to tunnel in, grab the good
assets, and steal them away from the bad debt
to save the patient's life. So as we close out,
I want to leave the listener with a final thought.
We use the phrase, too big to fail. But the story
of GM is more complicated. GM did fail. It absolutely
failed. It went bankrupt. The management was
fired. The shareholders were completely wiped
out. The bondholders took massive losses. That
is a crucial distinction. The corporation failed.
The investors in that corporation failed. But
the operations, the factories, the jobs, the
engineering talent, the supply chain were deemed
too important to the country to be allowed to
stop. It creates this. fascinating and maybe
dangerous precedent. If you are big enough and
integrated enough into the economy, the government
will let your corporate shell die legally, but
they will reincarnate your productive body so
the economy keeps moving. It's the difference
between saving the capitalists and saving the
capital. In this case, we save the capital, the
machines and the workers. We let the capitalists,
the shareholders and many of the lenders take
the hit. But the flip side of that is we also
let the new GM walk away from so many of its
past mistakes. Yeah. They left the pollution
at old factory sites, the bad contracts, the
pending lawsuits. All of that was left behind
in the old GM grave for someone else to deal
with. Is that fair? That is the $172 billion
question, isn't it? It saved an industry, but
it completely rewrote the rules of bankruptcy
for megacorporations. It proved that Section
363 could be used to effectively nationalize
and then reprivatize an American icon in 40 days.
So here's something to think about. If you're
listening to this in a car, take a look at the
logo on your steering wheel. If it's a GM car
from before mid 2009, it was built by a ghost.
a company that legally no longer exists. And
if it's from after mid -2009, it was built by
a completely different company, one born in a
courtroom in Manhattan, bankrolled by your tax
dollars and carrying none of the baggage of its
ancestor. And that is a legacy that is still
driving down the road today. Thanks for diving
deep with us. We'll catch you on the next one.