For months the news was horrific, a pounding beat of warm-up obituaries for what once had been America’s greatest and most influential corporation: General Motors. At death’s door or already in the graveyard were Bear Stearns, Lehman Brothers, Merrill Lynch, AIG and Citibank. The mood was apocalyptic.
With car sales in a free fall from the worst economic downturn since the Great Depression, GM was losing billions and running out of cash. By the time the com- pany closed its books on 2008 it would be in the red by a staggering $30.9 billion. Chief executive Rick Wagoner led the auto delegation in Washington seeking government funding to save the industry and keep GM out of bankruptcy.
Five years later, after an unprecedented government equity investment, GM is thriving and the Treasury plans to sell its remaining stake in the coming months. With countless articles and books now written about the GM restructuring and turnaround—not to mention three years of trumpeting by the Obama Administration taking full credit for the turnaround’s success—the most startling aspect of the prevailing narrative is that the core of how the restructuring really happened, inside GM, is yet to be fully told.
In the popular version of the company’s turnaround story, as GM teetered toward liquidation in 2009, an Obama-appointed SWAT team, led by financier Steven Rattner, swept in and hatched a radical plan: Through a novel use of the bankruptcy code they would save the company by segregating and spinning out its valuable assets, while Washington furnished billions in taxpayer funds to make sure the company was viable.
The real GM turnaround story, significant in saving the auto industry and the economy, is contrary to the one that has been published. In fact, the plan that was developed, implemented and then funded by the government was devised inside GM well before President Obama took office. In what follows, the inside story of this historic chapter in American business unfolds, laying bare the key facts.
GM’s extraordinary turnaround began long before Wagoner went to Washington in search of a massive loan to keep GM alive. My involvement in that story began in GM’s darkest days, five years ago on Sunday, November 23, 2008, when I visited Wagoner at his home that morning, presenting a novel plan to save General Motors.
As a consultant with expertise in restructurings and turnarounds, I had completed a half-dozen assignments at GM over the years. I had worked with Wagoner in 1992 when he became chief financial officer. I was asked to come in for a two-year stint as CEO of GM’s National Car Rental, the first time GM had recruited an outsider to lead a turnaround in one of its subsidiaries.
By 2008 I had over 20 years of experience with the auto industry and almost 30 years of working on turn- arounds. But for the past eight years I had backed away from business and my firm, AlixPartners, to care for my daughters after the death of my wife. I was essentially ‘retired’. But GM’s enveloping crisis and my friendship with Wagoner would bring me out.
Early on that November Sunday, I called Wagoner at his home in a Detroit suburb. I asked to see him right away, explaining that I had a new idea that could help save the company.
Three hours later I walked through his front door and into his family room. I knew Wagoner believed GM could not survive a bankruptcy. Studies showed consumer confidence would crash. No one would buy a car from a company that was bankrupt. However, what I knew about the economic crisis and GM’s rapidly deteriorating liquidity position told me the company had no choice but to prepare for a bankruptcy.
Yet I agreed with Wagoner. For a global company as big and complex as GM, a ‘normal’ bankruptcy would tie up the company’s affairs for years, driving away customers, resulting in a tumultuous liquidation. It had happened to other companies a fraction of GM’s size. It would mean the end of GM.
“I don’t think the company will survive a bankruptcy,” he told me. “And no one has shown me a plan that would allow it to survive a bankruptcy.”
“Filing bankruptcy may be inevitable, Rick. But it doesn’t have to be a company-killing bankruptcy,” I said. “I think we can create a unique strategy that allows GM to survive bankruptcy.”
To be sure, my idea, sketched out on a few pages, was provocative. I knew as I pitched it to Wagoner that it might raise eyebrows, if not outright objection, from others who believed their plans would be safer.
In short, I proposed that GM split into two very separate parts before filing: ‘NewCo’, a new company with a clean balance sheet, taking on GM’s best brands and operations; and ‘OldCo’, the leftover GM with most of the liabilities. All of the operational restructuring to make the new company profitable would also occur before a bankruptcy filing so GM could go through bankruptcy in a matter of days—not months or years with creditors and other litigants fighting over the corporate carcass while the revenue line crashes.
Seeking funding from the government, or any source, we would use Bankruptcy Code Section 363, which allows a company to sell assets under a court-approved sale. Typically, 363 is used to sell specific assets, from a chair and desk to a factory or division, but not the entire standalone company. Under this strategy GM could postpone filing a plan of reorganisation and a disclosure statement, which consume months and fuel a blizzard of litigation while market share and enterprise value bleed away.
Ultimately, those structural changes positioned the company not only to survive but also to bring about the extraordinary turnaround. But now, with the economy and the company in free fall, all of that hard work seemed to be forgotten.
(This story appears in the 29 November, 2013 issue of Forbes India. To visit our Archives, click here.)
It just sounds like this guy, Alix wanting to take credit for the whole deal. Purely ego driven it looks like to me.
on Dec 11, 2013Mr. Alix is quite \"brave\" to step forward and claim to be GM\'s savior 5 years after the fact and the restructuring is succesful. I don\'t doubt his significant contribution, but where was he when talking heads claimed that the taxpayers would lose every dollar in the bailout? I\'m no fan of anyone in Washington, but even I will acknowledge that the saviors are the political leaders, Republican and Democrat, who had the backbone to make the hard decision to give GM a chance. If GM had failed, their political careers were over. What was Mr. Alix\'s risk if GM failed?
on Dec 11, 2013It requires a character, conviction and courage to prove what you believe is truthful to justify your ultimate duty, irrespective of designation !
on Dec 9, 2013Excellent article.
on Nov 29, 2013NEXT HEADLINE? GOOGLE ACQUIRES GENERAL MOTORS! SOFTWARE EATS HARDWARE! http://gerardjrego.com/2013/11/20/next-headline-google-acquires-general-motors-software-eats-hardware/
on Nov 28, 2013