The Rescue of the US Auto Industry, Module B: Restructuring General Motors Through Bankruptcy

As the Global Financial Crisis worsened in 2008, credit markets tightened and a broader economic downturn developed, hitting the auto industry particularly hard. The crisis intensified a decade-long decline of the largest US auto manufacturers. Because of its size and importance to the economy, the US government decided to provide assistance to General Motors (GM) to sustain it while it developed plans for its long-term viability. Congress declined to authorize funding for the auto manufacturers, but in December 2008, Treasury provided a bridge loan to GM under the Troubled Assets Relief Program (TARP) to sustain the company until the Obama administration was in place in January 2009. Six months later, the administration provided debtor-in-possession (DIP) financing as GM went through an expedited bankruptcy process as the culminating event in GM's restructuring. The government's intervention in and $50 billion assistance to GM began in December 2008 and wasn't completely wound down until December 2013, resulting in a $10.5 billion loss. This case discusses the bankruptcy, Treasury's DIP financing, and Treasury's unwinding of its equity stake in GM acquired as part of the restructuring.