General Motors Chapter 11 reorganization facts for kids

In 2009, the big car company General Motors (GM) went through a major change. It used a special legal process called Chapter 11 bankruptcy in the United States. This allowed GM to sell most of its business and assets to a new company. This new company, called "New GM," was able to keep making cars and continue normal operations.

During this time, things like paying employees, honoring car warranties, and helping customers continued as usual. The bankruptcy process only affected GM's operations inside the United States. GM received about $33 billion in special loans to help it get through this process.

GM officially filed for Chapter 11 bankruptcy on June 1, 2009. This was a deadline set by the U.S. government to show a plan for how the company could survive. At the time, GM reported having $82.29 billion in assets but $172.81 billion in debt. This made it one of the largest company bankruptcies in U.S. history.

After the bankruptcy filing, GM was removed from the Dow Jones Industrial Average, which is a list of major companies on the stock market. A new company, backed by the U.S. government, was formed to buy GM's profitable parts. This "new GM" planned to sell its own shares to the public in 2010.

Why GM Needed Help

GM was already having money problems before the big car industry crisis of 2008–2010. In 2005, the company lost $10.6 billion. They tried to get government money and form partnerships with other car companies like Nissan and Renault, but these efforts failed. By 2007, GM had lost $38.7 billion, and its sales dropped by 45% the next year.

Running Out of Money

By November 2008, GM realized it would run out of cash by mid-2009. This would happen unless they got government funding, merged with another company, or sold off parts of their business. GM, along with Ford and Chrysler, asked the U.S. government for financial help.

At first, Congress didn't agree to give them money. But in December 2008, President George W. Bush offered GM a "bridge loan." This loan came with a condition: GM had to create a better business plan. GM said it needed $4.6 billion right away and another $12 billion to avoid bankruptcy.

Government Steps In

By February 2009, GM's cash reserves were very low, only $14 billion. The company had lost $30.9 billion in 2008. GM's leaders met with President Obama's special team for the auto industry. They made it clear that GM couldn't survive much longer without more government loans.

On March 30, 2009, President Barack Obama decided not to give GM more money right away. He asked GM to come up with a stronger plan. He suggested that Chapter 11 bankruptcy might be the best way to reduce GM's huge debts. This process would allow courts to help reach agreements with people and groups GM owed money to. GM's CEO, Rick Wagoner, also had to resign.

Efforts to Restructure GM

Before filing for bankruptcy, GM tried to sell its European operations. U.S. government officials suggested that if GM's plans were good, the government would own at least 50% of the company. They would also have the right to choose members for GM's board of directors.

On May 31, 2009, it was announced that the U.S. government would likely become the biggest owner of the new GM. The U.S. government planned to invest up to $50 billion and own 60% of the new company. The Canadian government would own 12.5%.

Protecting Car Warranties

To reassure customers, the U.S. government promised to guarantee GM's car warranties. This meant that even if GM went bankrupt, customers' warranties would still be honored. On May 27, 2009, the U.S. Treasury gave GM a special loan of $360.6 million for this purpose.

Selling Off Brands

GM also tried to sell off some of its car brands to focus on its main ones.

Opel and Vauxhall

On May 30, 2009, GM announced a deal to sell its Opel and Vauxhall brands. A group led by Russia's Sberbank and Canada's Magna International would own most of the new company. GM planned to keep a 35% share. However, on November 3, 2009, GM decided not to sell Opel after all. Later, in 2017, Opel and Vauxhall were sold to Groupe PSA for $2.3 billion.

Hummer

On June 1, 2009, GM said it would stop making Hummer vehicles. They later tried to sell the Hummer brand to a Chinese company, Sichuan Tengzhong. This deal would have given GM about $150 million. But on February 24, 2010, the sale couldn't be completed. GM then decided to completely stop the Hummer brand, and it was officially closed on May 24, 2010.

Saturn

On June 5, 2009, GM announced that the Saturn brand would be sold to Penske Automotive Group. GM would continue to build some Saturn models for Penske for two years. However, this deal also fell through on September 30, 2009. Penske couldn't find another company to build Saturn cars after GM stopped. As a result, GM decided to phase out the Saturn brand, which officially ended on October 31, 2010.

Saab

On June 16, 2009, a Swedish company called Koenigsegg Automotive AB and some Norwegian investors planned to buy the Saab brand from GM. GM would still provide some car parts and technology. But on November 24, 2009, this sale also failed. GM eventually sold Saab to Spyker Cars in February 2010. However, Saab later went bankrupt under Spyker in 2012.

GM Files for Chapter 11

The Filing Process

On the morning of June 1, 2009, GM officially filed for Chapter 11 bankruptcy protection. This happened in a federal court in Manhattan, New York. GM chose this court because it was known for handling big bankruptcy cases. The filing showed GM had $82.29 billion in assets.

GM's CEO, Fritz Henderson, said he wanted the bankruptcy process to move very quickly. President Barack Obama also gave a speech from the White House after the filing.

Court Decisions

The court quickly approved GM's request to borrow $15 billion to keep operating. The U.S. Treasury explained that without this loan, GM would have to shut down completely. The court also approved payments to important suppliers and employees.

The court set a timeline for the process:

• June 19, 2009: Deadline for any objections to the sale of GM.
• June 22, 2009: Deadline for other companies to bid on GM's assets.
• July 10, 2009: Target date for the sale to be completed.

The Sale of Assets

GM sold its assets through a special type of auction called a "section 363 sale." Because GM's assets were so valuable, only one company, NGMCO Inc. ("New GM"), made a bid. This "New GM" company was created by the U.S. government, which owned 60.8% of it. The Canadian government owned 11.7%, and the United Auto Workers (a union) owned 17.5%. The remaining 10% was owned by other groups GM owed money to.

The company that was selling the assets was called Motors Liquidation Company ("Old GM"). This "Old GM" would handle all the debts and claims from before the bankruptcy.

The New General Motors

The new company was officially named General Motors Company LLC. It was a completely separate business from the old GM. The new GM decided to keep four of its main car brands: Chevrolet, Cadillac, GMC, and Buick. It also planned to keep 3,600 of its 6,000 dealerships in the U.S.

The new GM also closed 14 of its U.S. plants, which meant about 20,000 jobs were cut. The present General Motors Company is a smaller, more focused version of the old company.

Government Support

The U.S. government, through a program called the Troubled Asset Relief Program, invested a total of $51 billion into GM's bankruptcy. By December 2013, the U.S. Treasury had gotten back $39 billion from selling its share of GM. The final cost to the U.S. government for helping GM was about $11-12 billion.

A study found that the GM bailout saved 1.2 million jobs and helped the government collect $34.9 billion in tax money.

New Look for GM

After the bankruptcy, General Motors Company also changed how it presented itself. It stopped putting the "GM Mark of Excellence" badge on every car. Instead, the company wanted each brand (like Chevrolet or Cadillac) to stand on its own. The familiar square blue GM logo was removed from its website and ads, replaced by a simpler text-only logo.

Timeline of Events (2008–2009)

• October 10, 2008: GM considered buying Chrysler, but decided against it due to its own cash problems.
• December 12, 2008: GM announced it was almost out of cash and might not survive 2009. The U.S. Senate did not approve a bailout loan.
• December 18, 2008: President Bush said an "orderly" bankruptcy was an option for GM and Chrysler.
• December 19, 2008: President Bush approved a bailout plan, giving GM and Chrysler $13.4 billion in government money.
• February 14, 2009: GM considered filing for Chapter 11 bankruptcy.
• March 5, 2009: GM's accountants warned that the company might not be able to continue operating.
• March 29, 2009: GM's CEO, Rick Wagoner, resigned as part of President Obama's plan.
• March 30, 2009: President Obama said GM might need to use bankruptcy to restructure quickly. He also guaranteed car warranties.
• March 31, 2009: President Obama gave GM 60 more days to show a plan for survival.
• April 22, 2009: GM stated it would not be able to make its debt payment due on June 1.
• April 24, 2009: GM announced it would stop making Pontiac cars to focus on its main brands.
• May 4, 2009: Other car companies showed interest in buying GM's European unit.
• June 1, 2009: GM officially filed for Chapter 11 bankruptcy.
• July 10, 2009: A new company, "NGMCO Inc.," bought most of GM's assets and trademarks. This new company then became "General Motors Company." The old GM was renamed "Motors Liquidation Company" to handle remaining debts.

Motors Liquidation Company

After selling its main assets, the old General Motors Corporation was renamed Motors Liquidation Company on July 10, 2009. This company continued the bankruptcy process to deal with its remaining debts and claims.

Motors Liquidation Company told investors that the old GM's stock would likely have no value. This was because the company had far more debts than assets. The stocks and bonds of the old GM were not part of the new General Motors Company.