On June 1, 2009, General Motors filed for bankruptcy, backed by $30 billion in support from the federal government. The same day, in the same New York courthouse, a judge approved Chrysler’s plan to forge an alliance with Fiat and emerge from bankruptcy as a restructured business with an uncertain future.
Two years later, all three American automakers have returned to profitability, the industry has added new shifts and 115,000 jobs, and GM and Chrysler have returned more than 50 percent of the government’s investment. The industry is mounting one of the most improbable turnarounds in recent history.
This outcome was anything but assured. In December 2008, the industry faced the prospect of uncontrolled liquidations just as our financial system was reeling from the worst financial crisis since the Great Depression. President George W. Bush provided more than $17 billion in temporary loans to GM and Chrysler to avert that disaster, but those efforts, while important, were not enough. President Obama took office faced with an industry that was burning and had to determine whether additional government support made sense.
In a series of meetings in early 2009, the administration’s autos team sought to examine an interwoven web of options and to highlight the risks each entailed. The companies needed to make dramatic changes. Years of bad decisions had caused them to progressively lose market share to foreign competitors, and the financial crisis had dried up financing for almost everything, compounding the collapse in demand for vehicles. It was not clear whether there was a responsible way to put taxpayer dollars on the line in a way that helped ensure the companies emerged stronger, not weaker.
The challenges extended beyond GM and Chrysler. The restructuring of these automakers could affect companies throughout the supply chain that employed nearly 400,000 American workers. Ford and other automakers depended on those suppliers, increasing the risk of damage if they liquidated or moved overseas. With the credit markets frozen and no major sources of private financing available, government inaction meant devastating liquidations. Nonetheless, even a federally supported bankruptcy could aggravate the situation by causing car buyers to lose confidence. And the automakers realistically could have taken a long time to emerge from bankruptcy. In the balance hung thousands of auto dealerships nationwide and small businesses in communities with concentrations of auto workers.
It was the uniquely deep linkages between the auto companies and suppliers, dealers and communities that led some experts to estimate that at least 1 million jobs could have been lost if GM and Chrysler went under.
Ultimately, the most difficult decisions centered on Chrysler, which was ailing even more than its larger counterparts and was, we determined, no longer viable as a stand-alone company. The choice was backing Chrysler’s effort to partner with Fiat or letting the company fail. A rich internal debate ensued. Our team presented the president with a range of stark options, including the fact that standing behind Chrysler’s restructuring still gave only a slightly higher than 50 percent chance of long-term success.