in 2007 Toyota became the world’s leading automaker by meeting global demand for smaller cars.
Do you know what Ford, GM, and Chrysler still don't do? Build small 2 door cars
While Toyota was building plants in the United States, GM was closing them. Instead of changing, GM offered zero percent financing to sell SUVs and other large vehicles.
It was able to do this through its lending arm, General Motors Acceptance Corporation. It was formed in 1919 to provide loans to General Motors' auto purchases. It expanded to include insurance, online banking, mortgage operations, and commercial finance. Its mortgage operations were full of toxic debt. As a result, title insurer Old Republic announced it would stop insuring GMAC's mortgages.
The initial $18.4 billion bailout was not enough. In April, GM borrowed another $2 billion. On May 2, 2009, GM stock fell below $1 a share for the first time since the Great Depression. That forced it to require another $4.4 billion to stay afloat.
On June 1, 2009, GM entered bankruptcy. It had $82 billion in assets and $172.8 billion in liabilities. That month, sales hit their low point of 9.545 million cars and trucks.
The government lent GM $30.1 billion to fund operations through June and July while it went through bankruptcy reorganization. It also guaranteed GM's extended warranties. In return, it bought 60 percent of the company in warrants for common stock and preferred stock. The Canadian government bought 12 percent. A union health trust received 17.5 percent stock ownership. That was in lieu of the $20 billion needed to cover benefits for 650,000 retirees. Bondholders received 10 percent stock ownership in lieu of $27 billion in bonds.
Stockholders lost all their investment.
GM promised to repay the $30 billion loan by 2012 when it planned to break even. The company pledged to cut its debt by $30 billion by converting debt ownership for equity. It agreed to pay union health care benefits to retirees by 2010. It promised to sell its Saab, Saturn, and Hummer divisions, reducing the number of models for sale to 40. It shut down 11 factories, closed 40 percent of its 6,000 dealerships, and cut more than 20,000 jobs.
Do you know what Ford, GM, and Chrysler still don't do? Build small 2 door cars
While Toyota was building plants in the United States, GM was closing them. Instead of changing, GM offered zero percent financing to sell SUVs and other large vehicles.
It was able to do this through its lending arm, General Motors Acceptance Corporation. It was formed in 1919 to provide loans to General Motors' auto purchases. It expanded to include insurance, online banking, mortgage operations, and commercial finance. Its mortgage operations were full of toxic debt. As a result, title insurer Old Republic announced it would stop insuring GMAC's mortgages.
The initial $18.4 billion bailout was not enough. In April, GM borrowed another $2 billion. On May 2, 2009, GM stock fell below $1 a share for the first time since the Great Depression. That forced it to require another $4.4 billion to stay afloat.
On June 1, 2009, GM entered bankruptcy. It had $82 billion in assets and $172.8 billion in liabilities. That month, sales hit their low point of 9.545 million cars and trucks.
The government lent GM $30.1 billion to fund operations through June and July while it went through bankruptcy reorganization. It also guaranteed GM's extended warranties. In return, it bought 60 percent of the company in warrants for common stock and preferred stock. The Canadian government bought 12 percent. A union health trust received 17.5 percent stock ownership. That was in lieu of the $20 billion needed to cover benefits for 650,000 retirees. Bondholders received 10 percent stock ownership in lieu of $27 billion in bonds.
Stockholders lost all their investment.
GM promised to repay the $30 billion loan by 2012 when it planned to break even. The company pledged to cut its debt by $30 billion by converting debt ownership for equity. It agreed to pay union health care benefits to retirees by 2010. It promised to sell its Saab, Saturn, and Hummer divisions, reducing the number of models for sale to 40. It shut down 11 factories, closed 40 percent of its 6,000 dealerships, and cut more than 20,000 jobs.
Government funding also provided the following incentives for new car buyers:
The government backed all new car warranties.
The economic stimulus bill allowed new car buyers to deduct all car sales and excise taxes.
Congress approved TARP-funded subsidies of zero percent financing for some Chrysler vehicles.
The government intended to make GM more efficient. That would allow it to become profitable when sales returned to 10 million vehicles a year. That happened in July 2009, when sales hit 10.758 million.
GM emerged from bankruptcy on July 10, 2009, as two separate companies. Old GM held most of the debt. New GM held the assets, $17 billion in debt, the contract with unions, and its underfunded pension funds. This allowed it to move forward as a profitable company. The new company only has four brands: Chevrolet, Cadillac, GMC, and Buick. The company sold Saab and discontinued Saturn and Hummer.
In April 2010, New GM repaid its $6.7 billion TARP loan.
In November 2010, Treasury revealed it would sell half its ownership of GM. That sale allowed an initial public offering on the stock market of $33 a share. It had already gotten back $37.2 billion by selling its ownership in GM.
In November 2013, the Treasury Department announced it would sell its remaining 31.1 million shares in GM. In December 2014, Treasury sold its remaining shares in Ally Financial.
https://www.thebalance.com/auto-industry-bailout-gm-ford-chrysler-3305670
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