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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 paper were filed on June 1, and the 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 will be folded 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.

The new company will be much smaller, with brands like Saturn, Hummer, Opel and Pontiac in the process of being sold or closed. It will also have a smaller sales network, with thousands of dealers having been cut during the reorganization. Its market share has also fallen to 20 percent, as rivals have profited from its troubles, down from 51 percent at the peak of the company's dominance. Its sales outside the United States now almost equal its domestic sales.

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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.

G.M. factories churned out family cars, pickup trucks and memorable muscle cars with taut, sculptured body panels that were rolling displays of American DNA. 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, prompting the hamlet to swell with new homes, motels and restaurants.

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.

For the fourth quarter, it lost $9.6 billion, or $15.71 a share, as its global sales fell 26 percent. It also adjusted its figure for its 2007 to $43.3 billion, a record, due to a noncash accounting charge. Meanwhile, G.M.’s share of its most important market, the United States, declined to 18.8 percent in February, according to statistics from motorintelligence.com, which specializes in industry data, and overall auto sales were the worst for the industry since 1981.

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, 50, 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. G.M. said it would not announce publicly the dealers that it no longer wants. Dealers whose franchises will not be renewed after October 2010 will receive a letter informing them of the decision.

The 1,100 dealers to be cut represent 18 percent of G.M.'s current dealership network but just 7 percent of sales last year. Nearly 500 of them sell fewer than 35 new G.M. vehicles a year.

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 sales last year. 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 last fall, 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. And G.M. hopes that it can move as swiftly in its reorganization.

The papers filed with bankruptcy court in Lower Manhattan promised plenty of pain. G.M. said it would shutter plants in Michigan, Indiana, Ohio and Delaware, and plants in Tennessee and elsewhere in Michigan were put on standby.

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.

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.

The new company will be much smaller, with brands like Saturn, Hummer, Opel and Pontiac in the process of being sold or closed. It will also have a smaller sales network, with thousands of dealers having been cut during the reorganization.

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