GM, Ford, Chrysler almost died during financial crisis, changes since

Ford Motor Company CEO
Alan Mulally, Chrysler CEO Robert Nardelli and GM CEO G. Richard
Wagoner, Jr. testify during a Senate Banking, Housing and Urban
Affairs Committee hearing on Capitol Hill November 18, 2008 in
Washington, DC.

Mark Wilson/Getty
Images

• Ten years ago, amidst the worst financial crises since
  the Great Depression, the American auto industry almost
  died.
• The “Big Three” U.S. car companies of General
  Motors, Chrysler,
  and Ford faced
  potential insolvency.
• But a decade later, thanks to the $80 billion dollar
  lifeline provided by the Troubled Asset Relief Program
  engineered by the Bush and
  Obama
  Administrations, the U.S. auto industry has recovered.
• Each of the major automakers experienced its own story
  out of the recovery, with lessons to be learned. 

Ten years ago, amidst the worst financial crises since the Great
Depression, the American auto industry almost died. By Fall 2008,
the “Big Three” US car companies of General Motors, Chrysler, and
Ford faced potential insolvency, and without swift government
intervention, their futures
were in doubt.

“There is no plan B,” said Fritz Henderson, GM’s president
and chief operating officer,
at the time.

These iconic car companies were led to that point by a
combination of poor decisions made by industry executives, high
gas prices, unpopular products, and external circumstances beyond
the control of both the industry and consumers, namely a once-in-a-generation
credit crunch that nearly took down the world economy. 

But the US auto industry has recovered, thanks to the
$80 billion dollar lifeline provided by the Troubled Asset
Relief Program engineered by the Bush and Obama Administrations
in 2008 and 2009. Seventeen million-plus in sales each of
the past
three years attests to that, nearly double
the nine million vehicles sold at the nadir of the
recession. 

Each of the “Big Three” has experienced its own story out of the
recovery, so let’s take a look at each one below. 

General Motors and its 2009 bankruptcy

In November 2008, with its stock price hovering at
$2 a share, GM leadership told Congress that unless it
received a federal bailout it would not be able to pay its
suppliers, meet its loan obligations, or cover the health-care
costs of its worker’s labor contracts. That winter, the company

received $5 billion from the departing Bush administration
and $17.2 billion from President Obama’s. 

GM employees applaud after
posing with new General Motors 2016 Chevrolet Camaro after it
rolled off the production line at GM’s Lansing Grand River
Assembly Plant October 26, 2015 in Lansing,
Michigan.

Bill
Pugliano/Getty Images

Through 2009 and 2010, GM endured a government-backed Chapter
11 bankruptcy,
reorganized its leadership, 
killed off unprofitable brands like Saturn, Saab, Pontiac,
and Hummer, and devoted itself to producing more
fuel-efficient cars and trucks.

Consumers responded to these changes and a newer, slimmed-down GM
recorded
a record profit in the third quarter of 2015. 

“They were just given a big
reset,” said Mike Ramsey, an automotive analyst and senior
research director at Gartner. “You can see the results today in
the huge amount of product that GM has been able to put out and a
lot of that is because they have cash and limited debt, so they
can invest in new products.” 

Fiat got Chrysler and $4 billion from the US
Government

Ten years ago, Chrysler faced similar straits as GM, especially
after
shutting down all vehicle production in December 2008 and
enduring a 42-day
period of bankruptcy. After accepting a
$4 billion dollar federal loan, Chrysler accepted a shotgun
marriage
with Fiat Automobiles S.p.A., of Italy in June 2009.  

Led by new CEO
Sergio Marchionne, who had been running Fiat prior to the
merger, the renamed Fiat-Chrysler-Automobiles (FCA) rebounded,
staging a successful initial public offering in
2014. FCA’s Dodge, Jeep, and Ram brand SUVs, crossovers, and
pickups were increasingly popular with consumers following the
recession, and FCA transitioned to a truck-and-SUV-dominated
portfolio in the US faster than the competition. 

Former CEO of FCA, Sergio
Marchionne.

Marco Tacca/Getty
Images

Ford didn’t go bankrupt, but life was tough

Just prior to the financial crises, under the direction of
then-CEO Alan R. Mulally’s “One Ford” plan, Ford had restructured
its entire portfolio and raised
$36 billion in financing from the capital markets. Ford sold
Swedish-based Volvo, which it had owned since 1999, to Chinese
carmaker Geely
for $1.5 billion and also sold Jaguar and Land Rover to
Indian-based Tata Motors for
$2.3 billion. 

These decisions allowed Ford to weather the downturn without the
need of government assistance, which substantially helped the
company’ s perception in the public eye amidst the crisis.
Mulally
even cut his compensation to $1 a year. 

In 2017, Ford’s net income totaled
$7.6 billion, a 65% increase from the previous year. Earlier
this year, the company
announced it will be ending investment in passenger cars in
the US (except for Mustang) to focus only on trucks and crossover
SUVs. And in September 2018, the company released a teaser of its
first
fully-electric SUV.

There were other factors in play as well

Other factors which contributed to the recovery of the “Big 3”
automakers were decreased gas prices and credit markets becoming
unlocked through Obama’s “cash
for clunkers” trade-in program. Home and building
construction also increased, which led to more demand for pick-up
trucks. 

But more than anything else, it was government intervention that
made the difference. 

“At its basic level, the car
companies got a well-financed restructuring, and the financier
was the government,” said Ramsey. “
The companies were essentially given a clean
balance sheet and reset to a point that made them viable.”