General Motors (GM) is an American multinational company founded in 1908. By the 1931 to early 2000s, GE was among the most successful companies in America, and yet as the financial crisis hit in 2008, General Motors filed for Chapter 11 bankruptcy reorganization on June 8, 2009, after losing more than $90 billion in the previous four years. General Motors was effectively split in two during Chapter 11 bankruptcy proceedings. The new company took GM’s best brands and operations, while the old company kept its massive liabilities.
| Year | Event |
|---|---|
| 1908 | Founding: General Motors (GM) was founded by William C. Durant, Charles Stewart Mott, and Frederic L. Smith, becoming a major player in the automotive industry. |
| 1931 | Market Dominance: GM achieved significant market dominance in the United States, offering various brands and revolutionizing car manufacturing with assembly line techniques. |
| 2008 | Financial Crisis: GM faced significant challenges during the financial crisis of 2008, leading to substantial losses and the need for restructuring. |
| 2009 | Bankruptcy: On June 8, 2009, GM filed for Chapter 11 bankruptcy reorganization due to mounting debts and financial instability, resulting in the formation of “New GM” and “Old GM” entities. |
| 2009-2010 | Restructuring: GM underwent a restructuring process, shedding unprofitable brands, closing plants, and reducing its workforce to emerge as a more streamlined and efficient company. |
| 2010 | Rebirth: General Motors held a significant IPO, marking a successful emergence from bankruptcy and regained its position as the largest automaker in the world. |
| Present | Ongoing Challenges: Despite its recovery, GM faces ongoing challenges, including global competition, the transition to electric vehicles, and supply chain disruptions. However, it remains a significant player in the automotive industry. |
| Aspect | Explanation |
|---|---|
| Founding and Early Years | General Motors (GM) was founded in 1908 by William C. Durant. It originated from the consolidation of several smaller automobile manufacturers, including Buick and Oldsmobile. GM quickly became one of the largest and most influential automobile companies in the world. It introduced various innovations in car design and manufacturing processes, setting the stage for its future success. GM’s early years were marked by rapid expansion and diversification into multiple automotive brands. |
| Market Dominance | GM achieved significant market dominance in the United States during the 20th century. It offered a wide range of car brands, including Chevrolet, Cadillac, Buick, and GMC, catering to different consumer segments. GM’s assembly line production techniques, pioneered by Henry L. Ford but adopted and refined by GM, revolutionized the automobile industry and made cars more affordable for the general public. GM was a symbol of American industrial might and economic prosperity. |
| Challenges and Decline | Several factors contributed to GM’s decline starting in the mid-20th century. These included increased competition from foreign automakers, changing consumer preferences, and economic challenges. GM struggled to adapt to the demand for smaller, more fuel-efficient cars during the oil crises of the 1970s. Quality control issues and labor disputes also affected the company’s reputation. By the late 20th century, GM faced financial difficulties, declining market share, and the burden of legacy costs, including employee pensions and healthcare. |
| Bankruptcy and Restructuring | In 2009, GM filed for Chapter 11 bankruptcy due to its mounting debts and financial instability. The U.S. government provided bailout loans to prevent the company’s collapse, leading to a government-owned entity known as “Old GM” and a new, restructured GM known as “New GM.” Through bankruptcy proceedings, GM shed unprofitable brands like Pontiac, Saturn, Hummer, and Saab. It also closed numerous manufacturing plants and reduced its workforce. The company focused on its core brands, including Chevrolet and Cadillac, as well as electric and fuel-efficient vehicles. |
| Recovery and Profitability | GM emerged from bankruptcy in 2009 and underwent significant changes in leadership and corporate culture. It placed increased emphasis on vehicle quality, innovation, and sustainability. Under the leadership of CEO Mary Barra, GM made strides in electric vehicle (EV) development, with models like the Chevrolet Volt and Bolt EV. The company also invested in autonomous vehicle technology through its subsidiary, Cruise Automation. GM returned to profitability and repaid its government bailout loans ahead of schedule. |
| Electric Vehicle Focus | In recent years, GM has accelerated its commitment to electric vehicles, pledging to transition to an all-electric lineup by 2035 and invest heavily in EV production and technology. It introduced the GMC Hummer EV and announced plans for a new electric commercial vehicle division, BrightDrop. GM’s Ultium battery technology and EV platforms have gained attention in the automotive industry. |
| Challenges Ahead | Despite its recovery, GM faces ongoing challenges, including global competition, supply chain disruptions, and the need to navigate the transition to electric and autonomous vehicles successfully. It also contends with sustainability and regulatory pressures. However, GM’s long history, scale, and commitment to innovation position it to play a pivotal role in shaping the future of the automotive industry, particularly in the transition to electric and self-driving vehicles. |
| Legacy and Impact | General Motors has left a lasting legacy in the automotive industry and American culture. It played a crucial role in popularizing cars and shaping modern automobile manufacturing. GM’s innovations in production processes influenced industries beyond automotive, contributing to the development of mass production and assembly line techniques. The company’s challenges and resurgence reflect the dynamic nature of business, competition, and technological advancement. GM remains a symbol of both the heights of American industrial power and the need for adaptability and innovation in a changing world. |
Background
General Motors (GM) is an American multinational company with a core focus on the design and manufacture of vehicles, vehicle parts, and the selling of financial services.
It was founded in 1908 by William C. Durant, Charles Stewart Mott, and Frederic L. Smith.
GM enjoyed a 60% market share in the United States at its peak and was the worst’s largest automobile manufacturer from 1931 until 2007.
Thanks also to one of the most prominent CEOs of America’s history, Jack Welch:
However, by the 2000s, and as the financial crisis of 2008 hit the automaker industry very badly, General Motors filed for Chapter 11 bankruptcy reorganization on June 8, 2009, after losing more than $90 billion in the previous four years.
The Government-backed deal saw the original company sell its assets and some subsidiaries to form a new company using the General Motors trademark.
Today, General Motors remains a significant global presence producing 6.829 million vehicles in 2020 with revenue of $122.48 billion.
Following is a look at the fall and subsequent rebirth of the American giant.
Fixed operating costs
When General Motors experienced a decline in sales, it could not cut costs because many of its expenses were fixed.
This made the company somewhat unique as a manufacturer. In most cases, operating costs fall as sales fall because fewer units are being produced.
That is, the business can employ fewer staff and spend less money on raw materials.
However, GM employees were on union contracts.
The company could have closed a manufacturing facility to reduce costs, but this did not guarantee employees would lose their jobs.
Union employees also received company pensions and health care coverage which were also fixed costs.
As a result, GM posted enormous losses as sales declined with expenditure remaining largely the same.
Automotive industry crisis
The so-called automotive industry crisis lasted from 2008 to 2010 and was the result of the Global Financial Crisis (GFC) and subsequent recession.
In the years before the GFC, General Motors invested heavily in SUVs and pick-up trucks with poor fuel economy.
As the recession pushed gasoline prices up, the company experienced a decline in sales as consumers looked to other makers for fuel-efficient cars.
This situation was made worse by a rise in the cost of raw materials.
Bankruptcy
Saddled with high levels of debt, GM predicted it would run out of cash by mid-2009 without government funding, a merger, or the sale of assets.
Government loans were then handed out to GM on the condition that it produced a plan for future financial viability.
The Obama administration then endorsed the sale of General Motors’ operational assets to a new company called NGMCO Inc. (or “New GM”).
The latter would take on GM’s most profitable brands and operations, leaving the former with most of the liabilities.
The restructuring then took place before the bankruptcy filing to make the new company profitable.
This enabled proceedings to conclude in a matter of days and not be dragged out for years as creditors scrambled to recoup their costs.
Nevertheless, it became the largest industrial bankruptcy in history with General Motors $173 billion in debt.
Normal operations continued throughout the proceedings with operations outside the U.S. unaffected. The “new” General Motors then emerged just 40 days later.
Rebirth
General Motors then undertook a restructuring program. The company discontinued the Pontiac and Saturn brands and sold Saab to Dutch automaker Spyker.
It was left with four divisions: Buick, Cadillac, Chevrolet, and GMC.
In 2010, GM held a momentous IPO and regained its title as the largest automaker in the world the following year.
Key takeaways:
- General Motors is an American multinational automobile designer and manufacturer. It was the world’s largest automaker for 76 years before filing for bankruptcy in 2009.
- General Motors was exposed in the wake of the GFC as rising gas prices saw consumers look elsewhere for fuel-efficient cars. GM also had several employee-related fixed costs which it had to meet as sales revenue declined.
- General Motors was effectively split in two during Chapter 11 bankruptcy proceedings. The new company took GM’s best brands and operations, while the old company kept its massive liabilities. Pro-manufacturing U.S. governments helped underwrite the transition with the new GM holding an IPO in 2010.
Key Highlights
- General Motors (GM) is an American multinational company founded in 1908 with a core focus on designing and manufacturing vehicles, vehicle parts, and selling financial services.
- At its peak, GM enjoyed a 60% market share in the United States and was the world’s largest automobile manufacturer from 1931 until 2007.
- However, by the 2000s and as the financial crisis of 2008 hit, GM faced significant challenges and filed for Chapter 11 bankruptcy reorganization on June 8, 2009, after losing over $90 billion in the previous four years.
- Fixed operating costs, particularly union contracts, made it difficult for GM to cut costs as sales declined, leading to substantial losses.
- The automotive industry crisis, resulting from the Global Financial Crisis and recession, further impacted GM’s sales as consumers sought more fuel-efficient cars from other manufacturers.
- With high levels of debt and the possibility of running out of cash, GM received government loans on the condition of developing a viable plan for the future.
- The Obama administration endorsed the sale of GM’s operational assets to a new company called NGMCO Inc. (or “New GM”), leaving the old company with most of the liabilities.
- After a swift restructuring, the “new” General Motors emerged just 40 days later and discontinued some brands while retaining Buick, Cadillac, Chevrolet, and GMC divisions.
- In 2010, GM held a momentous IPO and regained its title as the largest automaker in the world the following year.
- Pro-manufacturing U.S. government support played a crucial role in underwriting the transition during the bankruptcy proceedings.
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