The executives and board of directors were also afraid of aggravating the UAW, which led to billions of dollars of wasted money, overpaying workers and paying for employees who were not even working. GM at one time was the largest company in America; they did not know how to effectively minimize their costs when the economy took a nosedive, nor did they conserve resources for the chance that anything bad would happen to the American economy. Responses to Company Problems The first task on the agenda was finding money to keep the company running. The auto industry needed to ask Congress for money, but it was a tricky time because the country was just about to shift presidents. Neither president (Bush or Obama) wanted to deal with the car companies on their tenure. The Big Three combined were asking for $25 billion of government loans. The CEOs flew into D. C. on their private company jets and then proceeded to be humiliated by the politicians. Eventually, GM and Chrysler were given $14 billion in emergency loans. In order for the companies to receive this money, they have to cut their debt by two-thirds by convincing bondholders to take a stock-for-debt swap. The UAW would have to take stock in GM and Chrysler instead of cash for half that the auto companies owed the VEBA (Voluntary Employee Beneficiary Association) trusts, and the union would also have to immediately level their wages with those of the Japanese automotive plants that were in America- including their benefits. This last requirement was the breaking point for the UAW; they refused and argued that the UAW had already given enough to the auto companies in the last few years. Instead, within days President Bush gave $17. 4 billion from the $700 bank rescue package to keep the companies running for three months (Ingrassia, 2010). Bush’s requirement was that the companies needed to submit “viability plans” on February 17th, which would describe what the companies planned to do to return to being profitable. When President Obama took the office, he created the Automotive Task Force to investigate the American automotive industry and to suggest changes to be made. The task force decided
that GM was a company that knew how to build great cars but did not have the necessary ability to market them. In early 2009, plans were drawn up to eliminate Saturn, Pontiac, Hummer, and Saab from GM’s lineup, for a future emphasis on Chevrolet and Cadillac). In April of 2009, GM made the announcement that they would exchange $27 billion of unsecured debt for GM stock. This was how they chose to try to drop the 90% of their debt that the Automotive Task Force was requiring, in hopes to avoid bankruptcy. This did not go as planned, as GM stock was at a low price and did not appeal to their investors. Because of this, the last option was for the government to buy the remaining stock. The government gave $30 million and now owned 60% of GM’s stock (Ingrassia, 2010).
- One '16