On March 29, 2009, the Obama administration put General Motors and what then was Chrysler on the path to bankruptcy. It was a thunderclap that resounded most loudly in Detroit but reverberated around the world — and ultimately cost U.S. taxpayers about $10 billion.
The controversial bailout saved hundreds of thousands of jobs and likely kept the Great Recession from being a bona fide depression.
Ford avoided bankruptcy by mortgaging everything, even its Blue Oval logo, and returned to profitability in 2009 as GM and what became Fiat Chrysler went to court.
At the time, no one knew what would come out at the other end of bankruptcy — whether workers who had long thought they were secure would even still have jobs:
The three companies have made billions of dollars since the Great Recession — about $16 billion combined last year alone — and U.S. sales of new autos hit a record level in 2016.
But 10 years later, have the lessons stuck? Are Detroit’s automakers truly fixed?
Nearing the crash
Trouble had been brewing for months. In May 2008, gas topped $3.50 a gallon and tracking in GM’s OnStar center showed that many owners of pickups and SUVs were leaving them parked because they were so expensive to fill up.
The Great Recession hit with full force that fall with the housing bubble bursting and Lehman Brothers failing. Auto sales plummeted with the economy.
GM and Chrysler sought “bridge loans” from the federal government. Ford lent moral support, fearing collapse of the supplier sector. In November, CEOs Rick Wagoner from GM, Robert Nardelli with Chrysler and Alan Mulally from Ford and went to the U.S. Capitol to make their appeal.
It didn’t go well. In one moment that spoke volumes about the mood of Congress, Rep. Brad Sherman, D-California, caught the CEOs off guard: “I’m going to ask the three executives here to raise their hand if they flew here commercial.”
As hearts sank in Michigan, Sherman added: “Let the record show no hands went up.”
On Dec. 8, the U.S. Senate rejected the loans.
U.S. Rep. Debbie Dingell, who worked for GM at the time and had a front-row seat as her husband, then-Rep. John Dingell, worked on a solution, believes the nation’s economy was on the brink.
No more delays
The lame-duck Bush administration provided temporary help — a $17.4-billion kick to a badly dented can.
When it took office in January 2009, the Obama administration had no interest in watching the industry lurch from one disaster to another. It hit the reset button.
President Barack Obama appointed the Presidential Task Force on the Auto Industry, which demanded far-reaching new business plans from GM and Chrysler. When those proposals proved too timid, the task force installed new management and oversaw a complete re-engineering of the companies.
U.S. Rep. Haley Stevens, who was chief of staff for the task force, remembers the grave assessment of the companies’ condition:
April 30, 2009: Chrysler files for bankruptcy.
June 1: GM files for bankruptcy.
June 10: Chrysler, now in partnership with Fiat, emerges from bankruptcy. “No one should be confused about what a bankruptcy process means,” Obama said. “This is not a sign of weakness but rather one more step on a clearly charted path to Chrysler’s revival.”
July 10: GM emerges from bankruptcy, with the U.S. Treasury as a major shareholder.
Nov. 17, 2010: “New GM” does an initial public offering of stock.
“Moving forward, it’s up to the new management of GM and the new management of Chrysler to produce cars that people want to buy,” Obama said. “And if they do so, then I’m confident that not only are they going to be able to pay U.S. taxpayers back but they’re also going to be a source of strength for the American economy again.”
Or, as late-night talk show host Jon Stewart said: “I just bought a car … company. And so did all of you apparently.”
The industry’s rebound
Since the bankruptcy, auto sales recovered along with the economy, hitting a record in the United States in 2016 before leveling off the last two years. Consumers have shifted away from sedans as gas prices have remained low, partly because of the fracking explosion. The companies have returned to strong profitability, and the models they offer have changed substantially.
They came and went; vehicle mix then, now and in between. Use the arrows to click through the years and models:
Leadership changed (a lot)
Here’s a look at the Detroit Three chief executives in the last decade.
- Rick Wagoner. Having joined GM in 1977, he was named CEO in June 2000 and fired on March 29, 2009. Today, he’s an investor and adviser in Silicon Valley startup YourMechanic, and is a director for ChargePoint, an electric-car infrastructure firm.
- Fritz Henderson. CEO from March 30-Dec. 1, 2009. He’d been with GM since 1984. Today, he’s CEO of auto seat supplier Adient.
- Ed Whitacre. Was named board chair as the company emerged from bankruptcy in July 2009. Fired Henderson and was CEO until September 2010.
- Dan Akerson, a telecommunications and private equity veteran appointed to the post-bankruptcy board as U.S. Treasury representative, he succeeded Whitaker and was CEO until January 2014. He appeared on CNBC in November supporting the company’s recent factory cuts, saying they are a recognition of reality.
- Mary Barra, current CEO, is an engineer and GM lifer who has been CEO since January 2014.
- Alan Mulally. The Boeing engineer succeeded Bill Ford as CEO on Sept. 5, 2006. Ford remained board chairman, as he is today. Mulally led Ford to profitability by the second quarter of 2009, as GM and new Fiat Chrysler were in bankruptcy. He retired on July 1, 2014. He’s retired.
- Mark Fields. Longtime Ford executive, he was CEO nearly three years, losing the role in May 2017 as the stock price floundered during his tenure. Fields is operating partner at Amzak Capital Management.
- Jim Hackett. Former Steelcase CEO, University of Michigan interim athletic director and longtime friend of Bill Ford, he was on the board when he succeeded Fields.
- Bob Nardelli. The Jack Welch acolyte and longtime General Electric executive was named CEO of then-Chrysler when it was purchased from Germany’s Daimler by private equity firm Cerberus. He led the company from Aug. 5, 2007 until its bankruptcy. A former Home Depot leader, Portfolio.com named him one of the worst CEOs of all time. He later founded XLR-8 LLC, an investment and advisory company.
- Sergio Marchionne. A dual Italian-Canadian citizen with an MBA from University of Windsor, whose career had been mainly in finance at European companies, he was named CEO of Fiat in 2004. Fiat took over Chrysler as it headed to bankruptcy. Marchionne remained CEO of the new company until he fell gravely ill and died unexpectedly in July.
- Mike Manley. Succeeded Marchionne. He was the head of the Jeep and Ram brands before the change.
Are we bulletproof?
2008-2010 were inarguably terrible for Detroit and the hundreds of thousands of families whose livelihood depends on the auto industry, from manufacturing to white-collar workers to suppliers, dealerships, parts stores and the restaurants and stores that depend on their spending.
The U.S. economy remains heavily reliant on the auto industry. The Alliance of Automobile Manufacturers, a trade group, cited data from Ann Arbor’s Center for Automotive Research that the industry accounted for 7.25 million jobs in 2015, and half a trillion dollars in compensation. Automakers have invested almost $82 billion in U.S. manufacturing 2010-18.
So if Detroit’s automakers stumble badly again, the implications are huge. Are the lessons of a decade ago learned, and do the companies operate in a way to ensure their success for the foreseeable future?
They may be, Dingell says, more fragile than we realize:
Detroit’s carmakers have staked their finances on pickups and SUVs as consumer tastes have shifted.
Truck Wars: F-150, Ram, Silverado: ‘The best 3 trucks ever built’ go to war
- On the upside: Gas prices are low, and fracking, which has made the United States the world’s largest oil producer, holds the promise of softening future oil shocks.
- Industry analysts also note that pickups and SUVs get better gas mileage than they did a decade ago and automakers are better able to shift production if needed.
- In addition, they are developing many more electric vehicles, particularly for the Chinese market, and driving those costs down.
- Oil prices still depend on global stability, so we are still betting to some extent that Saudi Arabia and oil producers like Iraq, Venezuela and Iran won’t disrupt the world market.
- Closer to home, in UAW contract talks this summer, Detroit companies will face a restive workforce that could cause short-term disruption and costs.
Mostly, the auto business, as have so many other industries, faces massive disruption from changing technology and demographics.
U.S. auto sales peaked in 2016 and slowed last year even in China, the world’s largest market. Urban residents and debt-laden millennials are less likely to own a car individually, so carmakers are testing car-sharing options, “last-mile” devices such as GM’s new electric bike or rental scooters that Ford has bought into.
The big expense — too huge for any company to tackle alone — has to do with developing autonomous vehicles to carry people and goods. Carmakers and tech companies see a huge market here as an infrastructure that Ford CEO Jim Hackett says will cost $10 trillion is developed.
But it’s not clear when that might pay off, and signs are emerging that developing usable technology — let alone overcoming public opposition to self-driving cars — is more difficult that envisioned even a year ago.