GM Emerges From Bankruptcy After Landmark Government Bailout

By Peter Whoriskey
Washington Post Staff Writer
Friday, July 10, 2009

General Motors emerged from bankruptcy this morning, with chief executive Fritz Henderson promising that the fallen corporate giant will be reformed and that "business as usual is over."

The announcement signals the substantial completion of one of the largest bankruptcies in U.S. history and the next step in what has become a landmark government bailout.

The new GM will have fewer brands, fewer plants and fewer workers. The number of U.S. executives will be cut by 35 percent. But as important as this shrinking, Henderson said, is the need to revive the automaker's culture, long criticized as insular and slow-moving. Once the world's largest automaker, General Motors has been losing market share for decades.

"It is a new era, and everyone associated with the company must realize this and be prepared to change, and fast," Henderson said.

Formed by the sale of most of the old company's assets out of bankruptcy, the new GM will be an anomaly among American businesses because most of it will be owned by the U.S. and Canadian governments. The U.S. Treasury owns 60.8 percent of the new company's common stock, the UAW retiree health trust has 17.5 percent and the governments of Canada and Ontario 11.7 percent.

Henderson said the company would seek to repay the U.S. investment, but stopped short of promising that taxpayers will recover all of the $50 billion they have put into the company. The company's stock value would have to rise to unprecedented levels for the U.S. to break even on its investment.

Company officials instead seized on the company's emergence from 40 days in bankruptcy to advertise their efforts to reorient the failed automaker.

GM will limit its key executive committee to eight people in order to speed decision-making. It has lured former executive Bob Lutz, a well-regarded industry veteran, out of retirement to lead design, brands and advertising. It hopes to experiment with a way of auctioning cars on eBay. And it is launching a Web site, "Tell Fritz," that will allow consumers to send their comments to company executives.

"I am personally committed to being closer and more available to consumers than ever before," Henderson said.

Moreover, Henderson said he would seek to shake the company free of its complacency, vowing no longer to settle for being merely competitive with it rivals.

"Going forward, our objective . . . is to create products that consumers can judge as best in class," he said.

Even so, the business challenges facing GM are vast. To turn the company around, Henderson and his team must reverse the momentum of a decades-long slide.

GM once had a dominant share in the U.S. auto market of more than 50 percent, but that has eroded over the years to below 20 percent, as the company's reputation for quality has declined. Today, many people, particularly on the nation's coasts, are reluctant to buy a GM or any American car.

For the most part, however, the team of executives creating the "new" GM were also at helm of the failed GM, and skeptics have argued that as a result, the company is unlikely to undergo the kind of radical reform it needs.

The president's autos team forced the resignation of former chief executive G. Richard Wagoner Jr., but he was replaced by Henderson, who like many GM executives has spent nearly his entire career at the company. Henderson's father was a GM sales executive and the chief executive's first car was a 1969 Buick Skylark.

In response to concerns about the makeup of the executive lineup, Henderson said he's pointed out to his leadership team that one definition of insanity is doing the same things over and over again and expecting different results.

"In the end, we simply have to prove ourselves," he said.

He said the company is also open to hiring outsiders into its senior ranks. To do so, however, it must waiting until the administration's "compensation czar" sets standards for their pay packages.

Today's announcement also seemed to signal that Henderson likely will be the executive to lead the company as it tries to regain its footing.

After he was chosen by the government this spring, it was not clear how long Henderson would remain as the company's chief executive. But yesterday Edward E. Whitacre, the former AT&T executive who was chosen by the government's auto task force to be the company's new chairman, showed his support.

"I'm a big believer in strong leadership," Whitacre said. "We have that in Fritz and in this top management team."

The new GM will have only four core brands: Chevrolet, Cadillac, Buick and GMC. By the end of 2011, the company plans to operate 34 plants, down from 47 in 2008. U.S. employment is slated to shrink from about 91,000 to about 64,000 by the end of this year. The number of dealers is shrinking from 6,000 to 3,600 by the end of the year as well.

"I know most Americans want this company to succeed," Whitacre said. But "there's still a lot of work to be done."

Critics of the bailout and some of GM's creditors have said the company should simply have been allowed to fail.

In a statement issued yesterday, Rep. Jeb Hensarling (R-Tex.) dismissed the company's boasts that it had completed the bankruptcy sale in far less time than many experts had predicted.

It is "amazing how fast a company can emerge from Chapter 11 when you inject $40 billion of involuntary taxpayer capital into the process and trample over the rights of creditors in an unprecedented fashion," Hensarling said.

But U.S. Bankruptcy Judge Robert E. Gerber, who approved the sale, wrote in a July 7 ruling that a liquidation would be "staggering" to the public.

The company has 225,000 employees, 500,000 retirees, 6,000 dealers and 11,500 suppliers.

The case "raises the specter of systemic failure throughout the North American auto industry, and grievous damage to all of the communities in which GM operates," the judge wrote. "Under these circumstances I find it hardly surprising that the U.S., Canadian and Ontario governments would not stand idly by and allow those consequences to happen."

View all comments that have been posted about this article.

© 2009 The Washington Post Company