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Updated: Aug. 18, 2010

Overview

For most of the 20th century, General Motors was the biggest company in the most important industry in the world. It not only led in automotive innovations, but helped define the new breed of massive, bureaucratic multinational corporations that shaped the post-war economy. It was the world’s largest car maker from 1931 to 2008, when it was surpassed by Toyota.

By the time it lost that distinction, such figures were the least of its worries — by the fall of 2008, despite two years of steep cutbacks, G.M. found itself on the brink, reduced to begging the federal government for the cash it needed to stay afloat. In December, it received $9 billion in federal aid at the order of President George W. Bush. In March 2009, President Obama forced out G.M.'s chief executive, Rick Wagoner, rejected the company's restructuring plan and gave it 90 days to transform itself into a leaner, smaller company and win deep concessions from its unions, suppliers and bond-holders. In the end, those creditors balked and Mr. Obama's auto task force became convinced that the protection of bankruptcy court would give the best shot at creating a viable company.

The bankruptcy process was completed on July 10, when G.M. sold its good assets to a new, government-owned company. Brands like Chevrolet, Cadillac and GMC were folded into the new company, renamed the General Motors Company. The federal government holds nearly 61 percent of the new company, with the Canadian government, a health care trust for the United Auto Workers union and bondholders owning the balance.

The new company has downsized, with the sale or closing of brands like Saturn, Hummer and Pontiac.

In April 2010, G.M. repaid its government loan, a sign things could be turning around. Soon afterward, it said it earned $865 million in the first quarter, its first profit since 2007, with revenue up 40 percent, to $31.5 billion, and a positive cash flow of $1 billion. In June, GM increased output at most of its American operations.

Sustaining this progress, G.M. said in August that it earned $1.3 billion in the second quarter, its strongest financial performance since 2004. This rebound set the stage for the automaker to file for an initial public offering on Aug. 18th -- an important step in regaining independence and shedding the stigma surrounding the government bailout, which was widely unpopular.

The share sale, expected to take place within several months and to total $10 billion to $15 billion, will allow the federal government to begin selling the 61 percent stake in the automaker that it received in exchange for about $43 billion in loans that helped G.M. reorganize.

Shortly after the second quarter profits were announced, G.M.'s chairman and chief executive, Edward Whitacre Jr. announced that he would step down as chief executive on Sept. 1 and be succeed by Daniel F. Akerson, a G.M. board member and a managing director of the Carlyle Group.

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Sales in Asia have surprised the automaker. China is emerging as a crucial piece of its appeal to potential investors — and a surprising down payment of sorts for American taxpayers, who would begin shrinking their 61 percent equity stake in the company.

The Beginnings and the Glory Days

General Motors was formed on Sept. 16, 1908, when William Crapo Durant filed its incorporation papers, with a revitalized Buick as its foundation.

Under the leadership of Alfred P. Sloan Jr., its chief executive from 1923 to 1946, the company revolutionized the field by concentrating on meeting consumer demand — by offering, in Sloan’s words, a car “for every purse and purpose.’' In the 1950s, with its brands of Chevrolet, Oldsmobile, Pontiac, Cadillac and Buick, General Motors had 46 percent of the American auto market, Ford and Chrysler 44 percent, and everyone else combined just 10 percent.

General Motors transformed Detroit into the Silicon Valley of its day, a symbol of America's talent for innovation. It built celebrated cars, like Cadillacs, that became synonymous with luxury.

A G.M. plant was a ticket to prosperity for the communities lucky enough to land one. G.M. literally put Spring Hill, Tenn., on the map when it picked the town outside Nashville for its Saturn plant in 1985.

Its glory days continued to the 1960s, when it owned half of the United States car and truck market — its share peaked at 51 percent in 1962 amid suggestions that it should be broken up under antitrust laws. But then G.M. began a long and slow process of undermining itself. Its strengths, like the rigid structure that provided discipline early on, became weaknesses, and it lost its feel for reading the American car market it helped create, as Japanese automakers lured away even its most loyal buyers. Foreign competition, and G.M.’s failures to provide trustworthy cars that Americans wanted, began to diminish its luster and its sales.

The Failure to Innovate

The company did have vast numbers of loyal buyers, but G.M. lost them through a series of strategic and cultural missteps starting in the 1960s.

It bungled efforts in the 1980s to cut costs by sharing the underpinnings of its cars across different brands, blurring their distinctiveness.

G.M. gave in to union demands in 1990 and created a program that paid workers even when plants were not running, forcing it to build cars and trucks it could not sell without big incentives.

Its finance staff argued with product developers and marketers who pushed for aggressive spending on new cars and trucks. But forced to feed so many brands, G.M. often resorted to a practice called "launch and leave" - spending billions upfront to bring vehicles to market, but then failing to keep supporting them with sustained advertising.

By 1994, when Mr. Wagoner took over as chief executive, its market share had slipped to 33 percent. With its market share shrinking, G.M. could not give its multiple brands and car models the individual attention that helped Honda attract customers to the Accord and Toyota to its Camry.

It also lost interest in vehicles that needed time to find their audience, as happened when the company introduced the EV1 electric vehicle and then dropped it in 1999 after only three years.

In the early 1990s, the company lagged Chrysler’s Jeep and Ford by five years in bringing an S.U.V. to market with mass appeal. Once it had ramped up its offerings — it also owns Hummer — G.M. was reluctant to move from big profitable vehicles to building small, less profitable cars, even when gas prices began a steady rise after 2004.

2007: A Slump Begins

And as the price of gasoline at the pump topped $4 a gallon, G.M. was surprised by auto buyers’ dramatic shift toward the smaller, more fuel-efficient cars and away from the pickups and sport utility vehicles that had served as its mainstay.

The company cut its fourth-quarter 2007 production by 10 percent, and by July 2008, overall United States sales had fallen 20 percent. G.M. announced plans to idle plants to address the shrinking demand for pickups and S.U.V.’s. At the same time, it was adding shifts to try to make enough small cars.

Sales slowed by high gas prices ground to a near-halt as the Wall Street meltdown scared consumers and cut off many from credit. In mid-September 2008, Rick Wagoner, G.M.’s chairman, and the heads of Ford and Chrysler went to Washington to ask for $7.5 billion that would support $25 billion in loan guarantees that had been promised to help speed the switch to more efficient cars.

The money was approved in October, but not before a dire new forecast for global vehicle sales battered the shares of auto companies, particularly General Motors, whose stock plunged more than 31 percent. G.M. and Chrysler began urgent merger talks, then set those aside as it became clear that neither would survive long without an infusion of cash from the government.

Seeking Help From Congress

In November the heads of the Big Three returned to Congress to ask for $25 billion in direct aid, of which $10 billion to $15 billion would go to G.M. After Senate Republicans blocked a bailout bill, President George W. Bush announced an emergency bailout of G.M. and Chrysler. The plan pumped loans of $13.4 billion into Chrysler and G.M. from the fund that Congress authorized to rescue the financial industry. But to secure remaining loans the two companies needed to produce a plan for long-term profitability, including concessions from unions, creditors, suppliers and dealers.

The restructuring plan G.M. filed in February said it would need billions in additional government loans, even while cutting jobs, closing plants and reducing their brand lineups. It said it needed $4.6 billion in loans within weeks, from the $18 billion it had already requested, and an additional $12 billion in financial support in order to stave off bankruptcy.

On Feb. 26, 2009, General Motors announced that its cash reserves were down to $14 billion at the end of 2008. G.M. lost $30.9 billion, or $53.32 a share, in 2008 and spent $19.2 billion of its cash reserves. Mr. Wagoner met with President Obama’s auto task force, and the company said that it could not survive much longer without additional government loans.

The Obama Auto Task Force Report

In the meantime, the auto task force chosen by President Obama had been delving into every aspect of the company’s downsizing plan, including its somewhat upbeat estimate of how the car market will look when the recession ends — a market it projects at over 15 million cars annually — as well as its designs for new products, its financial controls and its management. Administration officials said the main standard they used to measure the viability of G.M. was the probability of recovering additional taxpayer money used to help the company, should more aid be necessary.

On March 29, the task force released its report, which concluded that G.M. had made considerable progress in developing new energy-efficient cars and could survive if it cut costs sharply. President Obama gave G.M. 60 days to present a cost-cutting plan and agreed to provide taxpayer assistance to keep it afloat during that time.

Mr. Wagoner resigned as a condition for the Obama administration to continue extending financial aid. Most of the company’s board would be replaced over the next few months, under the restructuring plan.

Frederick A. Henderson, G.M.’s president, succeeded Mr. Wagoner on an interim basis as chief executive. The Detroit-born son of a G.M. sales manager, Mr. Henderson joined G.M. in 1984, became chief financial officer in 2006 and was named president and chief operating officer a year ago.

As part of the plan, bondholders were pressed to convert two-thirds of the $27 billion owed them into G.M. stock, while the United Automobile Workers union was asked to substitute stock for 50 percent of their health care benefits for retirees.

Dealership Closings

In mid-May, G.M. announced it would eliminate 2,600 of its American dealers, or 40 percent, by 2010. The cuts are meant to thin bloated dealer ranks that are a holdover from the company's better days. The balance of the G.M. cuts will be dealers that sell brands the company is shedding, like Saturn and Hummer, and through attrition.

Of the full 2,600 to be cut, 1,100 dealers were notified on May 15. Those 1,100 dealers represent 18 percent of G.M.'s current dealership network but just 7 percent of 2008 sales. Nearly 500 of them sell fewer than 35 new G.M. vehicles a year.

Down to the Wire

On May 21, G.M. announced that it had reached a deal with the U.A.W., as required by the government, allowing G.M. to finance half of its future retiree health care costs - estimated at $20 billion - with company stock.

Since G.M. first appealed for government assistance, the U.A.W. has made several modifications to its 2007 contract, including eliminating a program that guarantees paychecks to laid-off workers.

Federal and company officials spent May preparing for an increasingly likely bankruptcy filing, which hinged on whether 90 percent of its bondholders would agree to swap the loans for stock in the reorganized company. Advisers to a committee of G.M.'s biggest bondholders, representing about 20 percent of the $27 billion in bond debt, vociferously criticized the plan as unfair and designed to fail.

They also accused the government of seeking to use them as scapegoats for a potential bankruptcy filing. Under their own proposal, G.M. bondholders would own 58 percent of the reorganized carmaker. On May 27, G.M. reported that the number of bondholders who had agreed was "substantially less'' than was required.

Filing for Bankruptcy

On May 31, the government announced that G.M. would file for reorganization in Federal Bankruptcy Court in Manhattan and begin to restructure its troubled operations under government control. With the filing, G.M. followed its crosstown rival Chrysler in bankruptcy.

In its bankruptcy petition, G.M. said it had $82.3 billion in assets and $172.8 billion in debts. Its largest creditors were the Wilmington Trust Company, representing a group of bondholders holding $22.8 billion in debts, and affiliates of the United Auto Workers union, representing nearly $20.6 billion in employee obligations.

President Obama, speaking on June 1, described the federal officials as "reluctant shareholders,'' but called the bankruptcy and federal aid the only way to avoid an economic calamity.

The company's Saturn unit, which G.M. began in 1990 to compete with foreign-made cars, also filed for bankruptcy. G.M. has said it will phase out the Saturn brand by 2012.

G.M.'s Saab unit is already under bankruptcy protection in Sweden. The German government picked Magna International, a Canadian car-parts maker, to buy G.M.'s Opel unit, which is based in Germany. On Nov. 3, 2009, in a reversal, G.M.'s new board said it had decided to keep the European unit because Opel was a critical part of its global vehicle development strategy.

In announcing the bankruptcy, Mr. Obama envisioned a much smaller, retooled G.M. can make money even if new car sales remain at a sluggish 10 million a year in the United States and even if G.M., once the giant of the industry, drops below its current 20 percent market share in this country.

But to get there, American taxpayers will invest an additional $30 billion in the company, atop $20 billion already spent just to keep it solvent as the company bled cash as quickly as Washington could inject it. Whether that investment will ever be recovered is still an open question, although the president said he was optimistic, and that Washington really had no choice.

The New Company

Unlike Chrysler, whose reorganization included a challenge by three Indiana state funds that rose to the Supreme Court, G.M. did not face an opponent with enough clout to derail its sale. It faced objections from dissident retail bondholders, who held a fraction of G.M.'s $27 billion in bonds, as well as from accident victim litigants, asbestos claimholders and some retirees whose claims would be largely wiped out.

But none of the protests rose higher than Federal District Court, where bankruptcy court rulings are initially appealed. And in the decision approving G.M.'s sale, Judge Robert E. Gerber of Federal Bankruptcy Court said that his ruling relied in part on the precedents set by Chrysler's bankruptcy case a month earlier.

On July 10, G.M. and the government completed the legal paperwork needed to put the company's most desirable assets, including brands like Chevrolet, Cadillac and GMC, into the new company - now named Vehicle Acquisition Company but soon to be renamed the General Motors Company. The federal government will hold nearly 61 percent of the new company, with the Canadian government, a health care trust for the United Auto Workers union and bondholders owning the balance.

A Slow Recovery

G.M. said on Nov. 16 that while it was still losing money, it had stabilized enough that it could take an important symbolic step and begin returning some of the $50 billion that the federal government provided to help with a recovery.

On Dec. 1, General Motors announced that Mr. Henderson was resigning and would be succeeded on an interim basis by the automaker's new chairman, Edward E. Whitacre Jr. The company said in January 2010 that Mr. Whitacre would become its permanent chief executive. The new board and Mr. Whitacre previously said they supported Mr. Henderson's efforts. However, there had been questions raised about whether G.M. could overhaul its corporate culture and make a fresh start under a holdover executive like Mr. Henderson, who has worked for the company for 25 years.

In February 2010, General Motors announced it would shut down Hummer, the brand of big sport utility vehicles that became synonymous with the term gas guzzler, after a deal to sell it to a Chinese manufacturer fell apart. Over the years, Hummer had shifted from its brawny status to an automotive pariah, one cited as prime evidence of the Detroit automakers’ failings.

The company's May 2010 results, however, show that it is on track to become a public company again, allowing the government to recover more of the billions of dollars it spent preventing G.M.'s collapse. Its pace of production picking up, the automaker said nine of its 11 assembly plants in the country would skip the regular two-week summer shutdown, which was to start in late June. The plants will remain open to build 56,000 additional vehicles, particularly new models that have been in short supply at many dealerships, the company said. Analysts said the announcement reflected the growing optimism among GM and other carmakers that the worst was over for the auto industry.

In August, G.M. said that it earned $1.3 billion in the second quarter and cited sustained progress in rebuilding operations after emerging from its government-sponsored bankruptcy in 2009.

It was G.M.'s second consecutive quarterly profit and paves the way for the automaker to offer an inital public stock offering. The success of the stock offering will determine how much money American taxpayers will recoup from the $50 billion government bailout of G.M.

In preparation for that move, GM said on July 22 it had agreed to buy a financing company, AmeriCredit, for $3.5 billion so it can lease more vehicles and increase sales to consumers with lower credit ratings. The transaction, expected to close in the fourth quarter, gives G.M. a captive financing arm for the first time since 2007, when it sold control of GMAC Financial Services.

Sales in China are increasingly part of the carmaker's long-term strategy. In the first half of 2010, its China sales rose 48.5 percent over the same period in 2009. For the first time ever, the automaker sold more vehicles in China than in the United States. Just 13 years after entering China, G.M. now says the country accounts for a quarter of its global sales — blistering growth that even G.M. did not expect this soon. 

In a surprising development, Mr. Whitacre announced in August that he would step down as chief executive and be succeed by Daniel F. Akerson, a G.M. board member and a managing director of the Carlyle Group. Mr. Whitacre, the retired chief of AT&T, had previously expressed a desire to leave G.M. once the company stabilized, but the timing of his announcement was a surprise, as was the choice of Mr. Akerson, a former chairman of Nextel Communications, as his successor.

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