Bankruptcy means never having to say sorry?

June 2, 2009

The first step in any recovery program is admitting that you have a problem.

For most people, nothing says failure or hitting bottom like a $50-billion government bailout or bankruptcy — or both.

But you might not know that from the tone of GM officials on Monday as they discussed the automaker’s future after filing the biggest industrial bankruptcy in U.S. history.

In a filing with a New¬† York bankruptcy court, GM blamed “the economic collapse and liquidity crisis that began to surface during the end of 2007 and exploded in 2008″ for its financial crisis.

It also pointed to “exigent economic circumstances” that compelled it to seek a government bailout to “avoid a potentially fatal systemic failure” that would have hurt GM, and hundreds of thousands of others in the auto industry.

Missing from the explanation was an admission of management responsibility for choosing to rely on sales of large vehicles or for backing an ultimately failed course of gradual reform and cost-cutting that failed to turn the tide against $88 billion in losses over four years.

Just hours after GM’s Chapter 11 filing, GM CEO Fritz Henderson went as far as to call the bankruptcy a “once in a lifetime opportunity.”

(A 98-page affidavit submitted by Henderson also steers clear of the question of responsibility for GM’s crisis. In fact, the only use of the term “responsible” is to make the point that GM is “not responsible” for certain retiree benefits.)

Henderson, a 25-year GM veteran installed as CEO after the Obama administration ousted Rick Wagoner in late March, said bankruptcy could sweep away the problems of too much debt, too many dealers and too many workers that have absorbed the attention of senior managers in recent years.

That would free up “mindshare” to focus on the challenge of making fewer but better cars and winning back consumers, he said.

“The GM that many of you knew, the GM that let too many of you down, is history,” Henderson said. “Today marks the beginning of what will be a new company, a new GM dedicated to building the very best cars and trucks, highly fuel-efficient, world-class quality, green technology development.”

Kent Kresa, GM chairman and a director since 2003, agreed that government-backed bankruptcy for GM was the best course to settle the restructuring issues that have absorbed the time and attention of managers and the board.

“All of these things have been a major source of energy to manage over the years,” he said.

Until GM admits more clearly that some of its distress has been self-inflicted, skeptics may question its ability to see its last and best chance at restructuring through to the final step.

36 comments so far | RSS Comments RSS

I as an Australian am still gob smacked about the blindness to their own errors of these so called ‘captains’ of business and industry who drove their own companies into the ground who still refuse to accept any blame. From even here on the other side of the world it was so easy to see the gradual decline of GM yet it seem they did nothing to prevent it. And even worse, have now left out in the cold many of those who worked their whole lives for the company to have their share and pension options slashed. I honestly believe these ‘managers’ have learnt nothing from these disasters and as long as anyone who was at the top end of the tree in any of the companies who fell so dramaticly remain, nothing will change.

Posted by JustinD | Report as abusive

Even if GM admits “that some of its distress has been self-inflicted”, I will still be a skeptic… no, not just a skeptic… a bitterly angry skeptic.

I can’t imagine a Chevy ad that could change my mind about that.

Posted by Charlie Johnson | Report as abusive

Outstanding…like some many of today’s corporate champions and captains of industry, GM’s management team accepts no responsibility and continues to draw huge, mind boggling to middle-class Americans, compensation packages…failure and the negative connotation associated with the term are simply ignored. More of the modern psychobabble “I’m OK, you’re OK” and “there are no losers” mantras being espoused by mentally challenged professionals… Who do we bail-out next?

If you can’t compete, get out of the race!

Posted by C. Pittman | Report as abusive

While I agree that the Executive leadership should have taken a hit for mismanagement over the past few years however you continue to regurgitate inaccurate data. If the demand turned from large vehicles to small vehicles then why has Toyota posted record losses? Or for that matter why has Honda, Nissan and all the other foreign car companies. Better yet why does Toyota still sell 7 SUV’s and trucks? Do you want too know what was and is selling, try contacting Auto Nation, the largest dealer in the U.S. and ask them what vehicles are moving. You may be very surprised it isn’t small, fuel efficient cars.

What you fail to mention in your blog is the legacy costs for retiree benefits that GM carried. The $55 Billion used to fund a UAW pension account in January of 2007. You fail to mention that cost per worker hour was at least $30.00 higher than their competitors. Sure you can spout that these facts don’t matter but then you have to explain the losses Toyota has incurred. After all they make the Prius and sever other small/fuel efficient cars. You may want to refer to your own Reuters article: “Toyota operating loss may hit $5 billion in 2009/10: report | Reuters:

It doesn’t appear you did much homework before putting out your opinion.

Posted by David M. | Report as abusive

The term bankruptcy as used by GM means broken promise. A broken promise to your workers. To the hundreds of suppliers. To the small Mom and Pop shops that you outsourced to. To the retiree who worked for 35 or more years. For the Cities and States that provided years of tax breaks. For the consumers who bought your products and who believed in you. For the dealerships who invested to sell your products. All broken promises. Moving forward it’s my turn to break my promise that I would never buy a vehicle not made here in the US.

Posted by matsolocam | Report as abusive

When fuel prices spiked during the Carter administration, fuel efficient, Japanese automobiles suddenly became very attractive to the U.S. consumer, and for several years thereafter, the U.S. automakers concentrated on building better, more efficient automobiles. However, as soon as the price of oil dropped, they began flooding the market with SUV and Bubba-truck guzzlers. It seemed unbelievably stupid – and it was. Yes, the UAW and its pensions are absurd, but the goofs at the top are surreal. It has become very Medieval in that the rich are supposed to stay that way, as if it were a permanent station in life to which they had a right. They can talk the talk, but forget the walk.

Posted by Harbinger | Report as abusive

I am from India and i agree with the sentiment expressed in this blog. Senior Management the world over have proved that they are generally inept at handling their companies. They have also displayed their callousness and selfishness by giving themselves a massive raise in their compensation, while the rest of the workforce deals with paycuts, or in a worse case scenario, they have their jobs culled. One would begin to believe that the biggest threat to our jobs and way of life dosent stem from terrorists in Afghanistan, but the con men created by the so called Harvards of this world! The sense of shame is so-missing in these new age managers

Posted by Ashish M | Report as abusive

I would llike to add that I get tired of hearing about legacy costs. It’s fairly simple to understand that the Japanese have not been in the market here to have any legacy costs. Everytime this is brought up it seems to somehow point to the US worker as undeserving. These costs were a promise made by the company to provide the worker with a benefit for his labor over the course of his/her’s lifetime. Nobody put a gun to management’s head and said, “make this agreement or I pull the trigger.” The foreign manufacturers don’t build vehicles here because they feel compelled to help out the US workers. They do it because it is cheaper. There is a 25% tariff added to any truck imported into the US. Add 25% to the price of a Toyota Tundra and see how many sell. That is why Mahindra will be assembling their new truck here instead of India.

I’m a veteran who is proud of my country. It breaks my heart to watch it being sold off to the highest bidder. We will soon learn how Britian and other world powers at the beginning of the last century felt as they watched the US become a world power. I’m afraid it’s our turn to watch China and India as they become the next world leaders.

Posted by matsolocam | Report as abusive

Wow, is this guy a puppet for Obama or what, I don’t think Obama could have said it any clearer himself.

Really is a shame about GM. This company will not survive the long term.

Posted by Kurt | Report as abusive

David M. you can point to Toyota’s losses all you like, but the simple fact is that when i look around my neighborhood and my city (vancouver, B.C.), japanese cars outnumber American cars by a huge margin, and in terms of sedans built in the last, say, 5 years, the margin could be 10-1 or even greater. That tells me that most of GM’s losses are unrelated to the economic downturn, whereas most of Toyota’s current losses are directly related to it.

Also, I drive a 1999 Saturn SL, a brilliant car, and i find it incredible that GM decide to shut down Saturn, which was GM’s only line that matched the Japanese. I hope GM does better under the new regime, but I have my doubts.

Posted by vildechaye | Report as abusive

While there is some truth in all of these comments, the bottom line, they have been bankrupt for years. In 1979 I bought a new GM car. It broke down in the first 10 days and then I caught the dealer stealing from GM by charging for warranty work that was not needed or performed! After 6 months of showing the proof to GM, they absolutely did nothing to the dealer. The dealer actually laughed at me when I picked up my car. I wrote the president of GM and told him that I would see the day when GM went bankrupt! I have already wrote the current president telling him I told you so! lol Hey, had to do it. This has been a management issue for 30 years that I know of! Yes, the UAW is just as guilty, but GM management should have stood up to the UAW 30 years ago and they should have shut down the dealer that was stealing from them! But, they made their choices, and so did I. I never owned another GM product and never will.

Posted by Trader | Report as abusive

I’m pretty sure the opinion is not trying to state that Toyota is a better company than GM. The problem that every tax paying American should have with this is GM’s apparent lack of vision with regards to the failure of their business. Fuel economy is partially to blame as well as global economy, but mostly to blame is the corporate juggernaut of this huge American business that has refused to listen to any dissenting opinion even from their own sharpest minds.
My family has been involved with all the US and many of the Japanese and European auto manufacturers. The big difference we’ve noticed is GM is more concerned with telling anyone who will listen how good and smart they are. More successful manufacturers are concerned with making better cars. If this mentality isn’t changed at GM, they deserve to go out of business.

Posted by K.Moon | Report as abusive

In the 1960′s when I first learned to drive we had a month old Chevrolet Station Wagon. One day while driving I slammed the breaks to avoid hitting a youngster who darted from between two parked cars. The engine and transmission ripped out and fell on me. The local GM representative said “I do not know how to drive.” A month later Chevy had a recall for defective motor mounts. Since that time I would never own a GM product! I have owned Studebakers, Ramblers, Dodges, and Toyota’s: but since “I don’t know how to drive” I think GM should go the way of Auburn, Studebaker, etc. I think they should go after all of their former bankers and directors for their incompetence and the moneys they received and apologies should be made to people for the garbage they foisted on us.

Posted by Arnold J. Harriett | Report as abusive

I am forced to give GM roughly $450,000 per employee, and then I’m told I need to buy a GM car! Sorry, I gave at the office. Not in this life will I buy anything GM or even associated with GM. Now, when can I get that $450,000 per employee back?

Posted by Denbee | Report as abusive

To JustinD
I love the term: Gob Smacked. I’m an old cowpoke in Arizona.


You are absolutely right David. All the automakers have been hit hard. The real issue is why did so many in our government dismantle common sense regulation enacted in response to the Great Depression?

Greed is the motivator of capitalism. I would claim that greed is right next to theft. No one admits to stealing if they want to get away with it. Corporations will deny everything in a product liability civil suit in order to avoid responsibility. They hire accountants to misrepresent their companies health during a stock offering and find loopholes to avoid paying taxes. Management not taking responsibility for abject failure is probably just an involuntary response.

Posted by Anubis | Report as abusive

It continues to amaze me that no one reports the real reason for the downfall of the American car companies. Ask any owner of a Toyota or Nissan and they will tell you that they could not handle the ridiculous repair bills that came with every Chrysler, Ford or GM.

I know that this is the reason I now have two Toyota’s in my garage. Just ask any mechanic what cars requires the least amount of repairs over a five year span.

Posted by David A. | Report as abusive

Here’s the problem. We hear a lot about “capitalism” and “free enterprise” in American politics, but the reality is that an inordinate amount of power is focused on one particular institution of capitalism: the stock exchange. Over the past 60 years, the executives of GM were answerable to the company’s directors (who owed their jobs to the executives who ensured their nomination) and the shareholders. For a long time, a substantial portion of the stock was owned by the a few wealthy family interests with large inherited fortunes. Other stock was in mutual funds. Such shareholders do not actually care whether the company is well run from a product point of view. They care whether the company’s stock either (1) maintains its value or (2) sees its value decline as such a gradual rate that people in the know can unload it before the rest of the market figures out what is going on. As long as the trust fund maintains its value, whatever happens is okay. It is also important to recognize that maintaining the value of such shareholders’ stock is only of indirect help in providing the company with access to capital through the stock markets. That is because most trading on the stock market involves pre-existing (i.e., “used”) shares being transferred from one shareholder to another. Only “new issues” provide new capital to the company; however, existing shareholders typically seek to limit new issues because they tend to dilute the value of existing shares (by increasing the overall number of shares). Answering to masters of this ilk, the GM management did exactly what they were supposed to do and treated the company as a “cash cow” — which is jargon for a company with a no-longer-exciting product for which there is still predictable demand. Cash cows are “milked” in the sense that the company can maintain profitability by managing costs. One such cost, however, is research and development, which means that managers of cash cows limit research and development. This makes sense from the perspective of efficiently milking a cash cow, because the market for the product is viewed as unlikely to experience change in the future. GM’s executive offices were thus focused primarily on cutting costs by using cheaper (and lower quality) components and rewarding managers who could take a great design and turn it into a mediocre (but cheap) product. For 35 years, various groups tried to get the U.S. Government to force GM and other American car companies to invest in fuel efficiency and pollution reduction. The car companies responded by investing in lobbyists to stop as much of this from happening as possible, both by direct political intervention and by spreading disinformation. In essence, the car companies responded to the 1970s oil embargo and clear air crisis (precursor to the current global warming crisis) the same way the tobacco companies responded to the news that cigarettes cause cancer. At no time in any of this was serious thought given to trying to make a great product, because thoughts about making a great product are counterproductive when a company is being operated as a cash cow. Ultimately, a cash cow gets sold — not infrequently to an investment group that includes employees — when its potential profitability falls below the certain target level it is expected to maintain as a cash cow. And that is what we are seeing with GM today.

Posted by Bob | Report as abusive

Its an “American Revolution” folks. GM management trampled investors and its workers, and its now fleecing taxpayers too. They are getting paid by the Government to do exactly what we didn’t want them to do — close down plants and lose jobs in the US. The bailout gave GM management enough time to figure out how to screw us well. They should have been allowed to go under and then the company may have had a chance.

Posted by E Towers | Report as abusive

GM and other American automakers were caught up in the financial crisis and CAN blame that for the current state of affairs. As can all the other manufacturers from other countries that are struggling with dismal sales. Yes, in the past quality, performance, fuel consumption and styling have been lacking but with desing and production leadtimes that auto industry works with that ship can not turn on a dime.

The complete melt down of the financial industry and the subsequent lack of consumer credit was a complete surprise to pretty much all parties, perhaps it shouldn’t have been, because the signs of overheating and dangers of excessive reliance on consumer credit, spending and confidence were apparent.

On the positive side the GM and Ford global product line-ups have never been better and they were battling the structural issues already across their organisations. Of course they have been building SUVs and trucks for the American markets because that is what an American consumer wants. Your average American driver sees an SUV as a safer alternative to a car, regardless of the actual crash safety results. The consumers need to educate themselves on current automotive technology, and manufacturers can help by providing appealing options, but car buyer is the king, dealers can only sell what the consumer wants to buy.

I think it is completely unfair to blame the current leadership, the likes of Fritz Henderson for GM’s problems. He whipped GM Europe into shape and that would have been hugely profitable in 2009-2010 had the economic climate not shifted so enormously. Even Mercedes-Benz and Porsche that didn’t have a legacy of financial problems have been shaken in this turmoil having to resort to unplanned selling of equity and considering partnerships.

If we want to go back to times of buying with cash instead of credit and all the other wholesome values of the 19th century, we need to be prepared to hundreds of millions of jobs lost worldwide and a whole lot of shuttered windows. Or we can think forward to sustainable levels of economic growth and shareholder expectations that actually meet the companies’ abilities.

If somebody should admit their resposibility in all this it should be financial analysts, the stock markets and the business press!

Posted by R. Nieminen | Report as abusive

Before people scream – buy American… and think that will solve the problem, its not buy American, its buy assembled or built in America – can be owned elsewhere, and these days will have to be owned by a foriegn company (our businesses have their collective heads stuck in another countries … you fill in the blank)… its the jobs onshore that matter, not the company. Anyone still think a company like say – Levi’s (sounds American right) is made here?

Union and management.

Cars stopped being the business of the company long before now – the Union was in the business of pension and health care, as well as making sure Joe Blue Collar got a “fair” wage for “fair” hours… oddly, quality did not seem to improve (I owned many American cars before choosing an American assembled Honda and now Mitsubishi). But hey – Joe Blue Collar has boats, and other things – including homes… I have yet to be able to to afford a house myself… my college degree I guess was not as good as that (ahem Union contract?) Fair pay for fair work – does not need a mob mentality…

Management was in the business of maximizing profit and making sure the public bought the “larger is better” marketing. Sadly profit has nothing to do with the future for these people – they live one bonus at a time.

The public is to blame for being sheep. We all want what our neighbor has… lets face it, accept it and all say BAH.

Posted by Chris | Report as abusive

I will never buy a GMC product until they admit their faults.

Posted by Dave Stone | Report as abusive

I think every one world wide should stop buying anything from GM. Let them fade away like and old left sock. They used us and bled us dry and now they think by claiming Bankruptsy its all going to be better. NO! I Say. The era of GM is gone Let it Go.

Posted by Average Bob | Report as abusive

This article also fails to mention that GM has recently re-invented itself. Five years ago GM was building some of the worst cars in the industry. The Cars they build today are actually very cool (that Saturn/Pontiac roadster is fantastic, the new Cadillac CTS-V is an amazing little BMW M5/Mercedes AMG eater, the new Deville is really really nice, the Chevy Malibu is a great midsized car, I will definately buy the Volt when it comes…the list of great cars they’ve come out with recently is extensive), and the build quality has come really really far since 2000. They’ve always built the best trucks in the world, but now they have some other cars I’d actually consider buying. Five years ago you wouldn’t catch me dead in a GM product.

I think they’ve finally set themselves up to be the dominant player in the auto industry again, the financial problems are a result of the UAW and the economy, their products are actually pretty cool now.

For a capitalism to work, a company must be allowed to pay what someone is willing to work for. If someone is willing to work for $15 an hour installing headliner with no benefits, the company shouldn’t be forced to pay $60 an hour + benefits for that service. That person demanding the $60 an hour should be forced to go back to school and gain some skills worth the $60 an hour they’re looking for. There’s no big red cross on the roof of GM headquarters, they’re not a non-profit existing to sustain the UAW. They’re also not in the USSR. They’re a business.

Posted by tgremmel | Report as abusive

The following is fact ;not opinion
This writer is a retired management executive.My brother
was a union president.Union pensions and benefits are contractsunder law.The contracts must be approved signed by management!
Assumption: Anyone placing blame on the unions is a union hater and not rational
You can test this assumption.
Ask them is they ever complained of bonuses for executives who signed these contracts?


And this is why General Motors has failed and will continue to fail with the arrogant management currently in place. GM’s only hope is to oust the old management and bring in the new – START OVER – you’re wasting the taxpayer’s money and have been for the last 9 months.

Posted by elefecer | Report as abusive

Remember Ross Perot who sold EDS systems to GM he got stock, cash, and a seat on the board of directors.
When he saw what was going on in the company and started to go public about it, Gm gave him millions to get off the board and sign an agreement not to talk about the company.
That did’t seem to even raise any eyebrows in the Govt., wall street or any where else.
I retired in 2000 because I didn’t think then that GM could maintain it financially and that in a few years this bankruptcy would happen. And low and behold it did.
I also think that the Govts.altered regulation (where a company can juggle assets and cash to make them SEEM to be making a profit)had a lot to do with the investors getting shafted.

Posted by Tom | Report as abusive

None of these guys (and gals) will ever admit to mis-management. They will flash their pearly-white grins (great dental plans), and sail along on the good ship “US Taxpayer”. They know suckers when they see them. Been selling them their shoddy goods for years.

Posted by Dick | Report as abusive

I also will never buy a GM product, or anything else that has UAW influence. Dump the UAW and it’s thug mentality and build something that people actually want, rather than junk that is overpriced simply to pay union retirees and current UAW workers $80/hr. to bolt mirrors on cars. Therein lies the taxpayer waste, but who am I to care about it if the rest of the country is ok with it?

Posted by Frank | Report as abusive

The only change so far produced by BHO regarding GM was wiping out investors and forcing creditors to take a huge cut.
The rest is the same. Same UAW. Same management. Same lineup.
Chevy Volt? A midsize from GM for $50k? That kind of money would buy a BMW, bigger, better equipped, better engineered, better made, and available not sometime in 2010 but immediately. Not a plug-in or hybrid, admittedly, but still a BMW – a German engineered, German-made, never touched by UAW car that the owner would not be ashamed to park in their driveway or anywhere else.
If GM wants to sell anything, they have to undercut not just BMW but Toyota or even Hyundai on price for comparably sized and equipped car – and not by just a few hundred, but rather by a few thousand. And no price advantage would ever make me to buy anything built by UAW. They already stole enough from me and other taxpayers – they are not getting a single penny from me when I can decide who gets it.

Posted by Anonymous | Report as abusive

‚ÄúToday marks the beginning of what will be a new company, a new GM dedicated to building the very best cars and trucks, highly fuel-efficient, world-class quality, green technology development.‚ÄĚ

Shouldn’t they have been thinking this way before now…

Posted by randal | Report as abusive

I have mixed emotions about the union. They have done some very good, important things, for workers in their history. However, standardized pay is not one of them. You all need to understand that it is not the amount of pay that is causing problems, rather it is the fact that all workers make the same, changing only by time on the job. So, if worker A is busting his hump and putting out more work than the guy next to him, he gets nothing for his efforts. So, eventually, the good worker slows down because he or she is frustrated by the amount the bad worker is making,

Posted by David Grube | Report as abusive

I will never buy a GM vehicle again. I’m buying Ford, (JUST DID,) an ’08 Grand Marquis), and I bought a Hyundai for my daughter. PLUS, I bought 4000 shares of Ford at 5.06 per share a month ago. It’s now $6.19. Obama screwed us. GM should have gone Chapter 11 a few months ago.


The last GM car I owned was in the early 80s. It looked nice, but was not reliable. When you try to get something fixed, like a clutch cable, and they can’t get THAT right, too bad. Plus, all the little stuff on the interior broke instantly (even on my Dad’s Cadillac). That was it for us. I don’t plan on buying GM cars in the future. Oh, and while I TRIED to at least buy a Ford recently, safety features which are standard on even the low-end Sonata, cost you extra on the Fusion (ABS and ESC). And, finally, I’m tired of dealerships who couldn’t care less about you. The Hyundai dealer paid attention, assumed we actually wanted to buy a car and knew their product, unlike the Ford dealer. US car makers and dealers need to get their act together.

Posted by KD | Report as abusive

No apologies are necessary. The management accomplished its mission. It obtained a generous handout for doing a miserable job. The unions likewise should feel no guilt. They got overpaid to put in screws and tighten nuts. If I set out to take cash from people without promising anything in return, the outcome is not accidental or evidence of misfortune. So I have nothing against a bunch of people exploiting a situation for cash. I am more concerned about the political forces that took my money and sent me the bill. They should be apologizing.

Posted by Don | Report as abusive

All of you Toyota and Honda lovers live in dilusionary world. I have owned cars from both of these manufacturers and I currently own a GM vehicle. I have not noticed any difference in quality between the Honda, Toyota, or GM. The reality is that all of you bought into the marketing that these cars are better and therefore you paid more for them. The truth is that there is no scientific data that proves these vehicles are better, there is just subjective data from people who bought the cars (Consumer Reports scores the vehicles based on consumer opinion surveys, and that you have paid a premium for a vehicle that is in reality no better than most domestic models.

Posted by Matthew | Report as abusive

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