General Motors Bankruptcy 2009
“After years of losses, the troubled automaker is forced into bankruptcy. GM is set to close a dozen facilities and cut more than 20,000 jobs” (Isidore, 2009, para. 1). After the Second World War, General Motors (GM) conquered the American automotive market capturing 50.7% of its market niche in 1962 (Holstein, 2009). Whether GM was late introducing a new feature or design was irrelevant, Bob Lutz (cited in Holstein, 2009) was quoted as saying "we had such enormous power that we could always steamroller everybody else." In 2009 GM’s stock dropped below that of the minimum price required to trade in the New York stock market and closed at its lowest in 76 ...view middle of the document...
On July 5, 2009, an order was entered approving the sale of all of the Initial Debtors’ assets to General Motors Company, a new and independent company under section 363 of the Bankruptcy Code (http://www.motorsliquidationdocket.com/index.php3). According to a report by MSNBC news GM had $172.81 billion in debt and $82.29 billion in assets, as a result, Sanger, Seleny and Vlasic, (2009) posited that as one of the biggest automotive companies in America, GM was hard pressed into bankruptcy protection with the belief that GM could be saved. This bankruptcy was seen as a historic moment in to automotive industry which was once the nerve centre of the American financial system. As with all cases of bankruptcy GM’s future was filled with downsizing and great financial loss for stakeholders.
Effects of GM’s Bankruptcy on Stakeholders
The greatest issues faced by GM was that sales and the cost of stock would decrease dramatically which occurred when GM’s stock closed at 37 cents in 2009. According to Business Week (2005) it had been decades since a U.S. carmaker filed for bankruptcy. Similar to retailers such as Hechinger and carmaker Mitsubishi, GM experienced a decrease in sales when their financial problems became widely publicized (Business Week, 2005).
According to the New York Times (2009) when GM petition for Chapter 11 the Treasury plans allocated a 10 percent stake to bondholders, and offered warrants of an added 15% of equity on the condition that Bondholders satisfy the Treasury at a particular time.
However, GM’s stockholders would get no recovery from the new entity asset sale which initially indicated an offer of 1% of the new company (New York Times, 2009). Additionally, the new holders were not allowed to sell their shares at the outset.
According to Altman (2009 cited in Business week 2005), the biggest losers in this situation was the U.S. taxpayers with a bill of over $50 billion, uncertain whether the company will rise out of the ashes. Sandler et al. (2009) also added that with assets caught up in legal action, unsecured creditors, dealers and suppliers could be waiting for years to glean proceeds from discarded assets in the new company.
With job cuts, downsizing and the closing of offices, employees also suffered great loss in terms of job security, the ability to provide for families, and loss of healthcare and pension plans in this economic crisis. By restructuring GM, $30 billion in financial assistance from the Treasury Department and $9.5 billion from Canada seemed the most logical strategy to take in order to circumvent complete closure of GM. The other option had devastating consequences in that it would significantly diminished the value of GM’s assets and cause hundreds of thousands of employees and by extension, families to lose their jobs as well as health...