How General Motors Was Really Saved: The Untold True Story Of The Most Important Bankruptcy In U.S. History

by Forbes
Editor’s Note: Lots of people–including President Obama–have trumpeted their role in the success of the government-backed turnaround plan that saved General Motors, the most importantindustrial company in the history of the United States.

But on the fifth anniversary of the crisis, Forbes presents an exclusive, unprecedented look at what really happened during GM’s darkest days, how a tiny band of corporate outsiders and turnaround experts convened in Detroit and hatched a radical plan that ultimately set the foundation for the salvation of the company.

Author Jay Alix, one of the most respected experts on corporate bankruptcy in America, was the architect of that plan, and now, for the first time, he reveals How General Motors Was Really Saved.


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 company 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, Nov. 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 turnarounds. 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.”

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