Finally, "General" Motors Once Again

Thursday, November 18, 2010, was a big day for the entity formally known as “Government Motors.” GM went public. It is again being traded on Wall Street and it made history once again. This IPO offering was the biggest in our nation’s history. The initial price offering of $33 dollar per share went up immediately upon the opening of the stock market to $35 dollars per share. The federal government was the biggest seller, selling off 358 million shares and netting a tidy profit of $11.8 billion dollars, a little over 20% of the $50 billion that was given to GM to prevent the bankruptcy that happened anyway. The government plans to sell its remaining 500 million shares over the next two years. This opening offering also reduced the federal government’s share in GM from 61% to 36%, effectively taking away its power over GM, at least on paper.

This doesn’t mean that the power in GM left the U.S. Over 90%of the stocks were purchased by American investors. But not by “the little guy.” Many personal investors attempted to purchase GM stock through brokers on an individual basis and were shut out by larger backers and banks. GM also reserved 5% of the offered stock for purchase by employees but required a minimum purchase of $1000. Apparently, the company did not plan to be traded by small time investors. But that didn’t affect the success of the sale. GM stock may have netted a total of $23 billion, when the preferred stock figures are added to the volume traded on the stock market Thursday.

This is great news for current GM employees but means little for the thousands that lost their jobs with GM. The end of the year also marks a closing for the former employees of the Moraine Assembly plant. Their benefits received from GM will end at the end of the year, including medical insurance. The Dayton area unemployment is still well above the national average and, as many of these former GM workers move to find jobs that will support their families, it is expected that this area will see an increase in financial troubles. While former Moraine Assembly workers will not see the benefit of this new page in GM’s history, hopefully it will mean good things for one of the largest employers in America.

The Future Plans for the Moraine Assembly Plant

After the completion of the GM Bankruptcy, the Obama administration set up $773 million dollar environmental trust fund to help the Motors Liquidation Company (MLC) clean up dozens of closed plants on Michigan, Ohio, Indiana and 11 other states. The Moraine Assembly Plant will be one beneficiary of these funds, which are expected to be approved in early 2011. What exactly does that mean for the Moraine Assembly Plant?

            Before the closing of the plant in 2008, the value of the property owned by GM was listed at $91.3 million. That value dropped to $69 million at the end of 2008, when Montgomery County Auditor Karl Keith assessed the closing plant as production was winding down. In October of 2009, GM was pushing to have the value placed at $22 million based on the fact that there would be any manufacturers that would be interested in the plant in its current condition. The allowance of the environmental fund has changed that.

            On November 11, 2010, the Dayton Daily News reported that GM had found a company to refurbish the plant. California-based Industrial Realty Group (IRG) invited representatives of Moraine and MLC to tour some of its current projects around Ohio. Moraine City Manager Dave Hicks seemed positive that a deal to clean up the plant is imminent and hope to have confirmation within a week or two. If the deal is settled and IRG takes the property it could be sold to one of the three companies who have confirmed an interest in buying the plant for use by mid-February.

            The announcement of these plans seems to be a positive step for the City of Moraine and the Dayton area in general. It is the hope of all that this deal will come to fruition and this will be the beginning of a strong economic recovery for Daytonians. While this is great news for the City of Moraine, many of the displaced workers of the Moraine Plant have nothing to be pleased about. As 2010 is quickly coming to a close, many former workers of the plant have not found new employment and their benefits will end with the year. Hopefully there is hope for them as well.

General Motors Post-Bankruptcy Timeline

7/10/09: GM emerges from bankruptcy 6 weeks after filing as a private company with the U.S. Government the largest shareholder.

9/30/09: Announces that GM will drop the Saturn brand.

11/2/09: U.S. Government announces that GM and Chrysler will not realize enough value for the Treasury Department to break even on the $80 billion dollars that has been sunk into the companies.

11/3/09: GM will keep Opal, its European car company.

11/16/09: GM reports a $1.2 billion in losses for the third quarter of 2009.

12/1/09: CEO Fritz Henderson resigns after just 8 months. Whitacre takes over as CEO.

1/25/10: GM sells Saab brand for $74 million.

2/24/10: Announces the elimination of the Hummer brand.

4/7/10: Reports a $3.4 billion dollar loss for the fourth quarter of 2009.

4/21/10: Finds $8.1 billion for payment on U.S. Government loans.

5/17/10: Reports $865 million dollar profit for first quarter of 2010.

6/17/10: Cancels the normal 2 week July shut-down for most American plants.

7/22/10: Announces it will buy AmeriCredit Corp. for $3.5 billion. This move is to open credit to buyers with poor credit scores.

7/27/10: Sets the price of the Chevy Volt, an American car company’s first fully electric car, at $41,000.

7/31/10: GM announces a 14.3 percent rise in sales for the first 6 months of 2010. However, GM’s market share fell to 19.2 percent from 19.6 percent.

8/5/10: Settles arbitration with dealers that opposed being cut free from GM. GM dealers number 4500.

8/12/10: GM reports a $1.3 billion dollar profit for the second quarter of 2010. Whitacre steps down as CEO and is replaced by Daniel Akerson.

8/18/10: Files initial paperwork to take the company public.

9/16/10: Akerson announces it will take a couple of years to completely payback the government.

9/20/10: Treasury Department confirms that GM will allow foreign investors into stock sales. There are rumors that GM’s partner in China, SAIC, wants to buy a stake in the company.

10/5/10: GM offers stock to employees, retirees, and dealers with a minimum purchase of $1000 worth of stock.

10/12/10: Akerson meets with Timothy Geithner, Treasury Secretary, to discuss the IPO.

10/28/10: GM announces plans to reduce its debt by $11 million to attract more investors. It will buy back $2.1 billion of the government’s preferred shares, invest $6 billion toward its pension obligations, and put $2.8 billion into a health care fund.

While some of the moves that GM has made since emerging from bankruptcy last year have been positive, it is disturbing to find it is making decisions like purchasing credit companies to finance bad credit purchasers. There is also the issue of the rapid “changing of the guard” at the highest level of management. Why can’t GM keep a CEO for very long? Again, how does all this affect the GM workers in the Dayton area? Only time will tell.

The New GM Prepares to Become a Public Company

In August of this year the New GM filed the proper ISO paperwork to begin to issue publicly traded shares and again become a public company. GM will offer some preferred stock and standard common stock, which initially will not pay a dividend. Additionally, the preferred stock, which will pay a small dividend, will be converted to common stock before 2013. The U.S. Treasury will own 61 % of the common stock, an amount equal to that of its share of the current private company. The remainder of the common stock will be divided between the Canadian Government, the UAW, and GM’s former bond holders. The preferred stock will be issued as a way to raise revenue and continue to repay the $50 billion dollar government loans and run the new company.

While the new GM has made some strides toward renewing the American people’s faith in the company with new products like the Chevy Cruze, the new company has been plagued with management issues that can make the new stock unattractive to prospective investors. The new GM has had four different CEO’s since March of 2009. When combined with a still shaky stock market, some experts wonder if GM stock can produce the results that the new company and the federal government hope to see. On the positive side, overseas sales can keep the struggling American company afloat. The “Heartbeat of America” may soon become the “Heartbeat of China.” In the first half of 2010, GM sold more cars in China than it did here at home. China is now accounting for 25% of GM’s global sales.

The new GM’s most significant improvement is the launch of the Chevy Cruze. Made in America, the Cruze is GM’s new competitor in the compact car genre. While its starting price of $16,995 is higher than its foreign competition, it does include many amenities like power locks and air-conditioning that are not standard on most compact cars. Another selling point for American buyers is that it made here in the U.S., while most other compacts are made overseas.

While these strides are great for GM as a whole, what does it mean for the Dayton area? Not much. The government-sponsored bankruptcy agreement is requiring the old GM, known as the Motors Liquidation Company, to sell off many of GM closed plants. The problem with these properties is that many are environmental issues that must be corrected before they can be sold. It is unclear if the 19 properties in Montgomery County fall into this category but GM is using $836 million of the $1.17 billion loan from the Treasury Department to begin clean-up of over 90 plants in 14 different states. Since this work should begin by early 2011, Daytonians will have to wait and see if GM will be able to sell the properties it owns here.

To read the GM IPO filing follow this link:

http://www.sec.gov/Archives/edgar/data/1467858/000119312510192195/ds1.htm

GM and the Government: The Wheeling and Dealing

In 2007, when gas prices began to top out around $4 a gallon, GM, who had come to rely on the SUV and truck sales for its bread and butter, was surprised to find that the American public stopped buying big gas-guzzling vehicles and began to purchase smaller fuel efficient cars from foreign auto-makers. By October of 2007, GM stock had plummeted 31% and GM was asking for a piece of the first government bailout.

By November, GM was in front of Congress asking for the money. When Congress denied the loan, then-President Bush, gave GM, and the rest of the Big Three, a portion of the already approved financial bailout funds. But GM needed more money and to secure more loans from the government, began a restructuring plan to present to the federal government that included cutting jobs, closing plants, reducing the number of brands it produces, and billions in additional government funds that was presented to the government in February of 2008. One year later, Rick Wagoner met with the Obama auto task force and requested release of the funds it had asked for from the previous administration to stave off bankruptcy.

Once the Obama administration was involved, thing began to change for better and for worse. The task force approved GM’s plan, but pressured the top management of GM, Rick Wagoner and the Board of Directors into resignation, and replaced them. Wagoner was replaced by a long time GM employee who had worked his way up from a sales manager at his father’s dealership in Detroit. Frederick Henderson was a good choice to head up the New GM. Bond holders were pressured to convert 2/3’s of the 27 billion owed to them into stock in the General Motors, LLC, the “New GM.” Additionally, the UAW agreed to take a stock share in place of 50% of their contract guaranteed health care benefits for retirees. It was this agreement with the UAW that had many people here in the Miami Valley livid. Where was the stock share for other unions to whom GM owed benefits? What about the non-retirees, men on lay-off from GM plants, that were promised guaranteed income-streams and health benefits for certain time periods? What would happen to a non-UAW union worker who was not yet eligible for retirement from GM but would eventually get pension and benefits from GM? There were no guarantees for anyone who was not a UAW member. GM and the Obama administration are still silent on these issues today.

The History and Beginnings of General Motors and Its Downfall

General Motors began on September 16, 1908 as a corporation started by William Crapo Durant. Buick was the basis of its foundation. From 1923 to 1946, GM flourished under the leadership of Alfred P. Sloan, Jr. By the 1950’s GM had five separate brands it was producing for the American public and maintained a 46% market share in the U.S. GM’s market share peeked in 1962 with 51% of the market and there began to be mutterings that GM should be broken up under antitrust laws. At this point GM began a slow downhill ride because some of its early strengths, like a rigid structure, became weaknesses as GM began to lose its feel for reading the American car market.

By the 1980’s GM began to have issues with cost-cutting and began, in my opinion, to make its biggest mistake. This was when GM stopped keeping its models and brands separate. For example, the Moraine assembly plant made the Chevy Blazer, the GMC Jimmy, and the Oldsmobile Bravada during the 1990’s. These three SUVs were all exactly the same vehicle except for certain features that were only available from their specific “brands.” GM also stopped innovating. The GM Blazer, although it became the TrailBlazer, did not change its design for several years. GM continued to make the same car, by this time in three sizes, until the plant closed in 2008.

Another issue that was detrimental to GM, and probably all the auto makers, was an agreement that was reached with the unions in 1990. This agreement was that, if GM laid off workers, it would be required to give the employees “subpay” to supplement unemployment payments. GM also began to use a marketing practice that was unsuccessful; one it had to employ because of its multiple models of vehicles. The practice was called “launch and leave.” GM spent millions to launch a “new” model, but with so many models being produced it could not continued to support the model with subsequent advertising.

In 1994, GM hired a new CEO, Rick Wagner. Mr. Wagner attempted to raise GM’s market share from its first low of 33%. But with GM spread so thin over so many different models and brands, even when GM found a new nitch, it could not give the new innovation time to mature. A good example of this was the EV₁,the first electric car produced by an American automaker. It was introduced in 1996 but dropped in 1999 because of lack of interest by the American public. Another failing by GM and its leadership was its refusal to give up its “bread and butter,” big gas-guzzling SUV’s. In 2004, when gas prices began to creep upwards of $4, GM refused to focus on smaller, more gas efficient vehicles. Surprisingly, only five years before, GM had a fully operation electric vehicle in full production.

Who knows why GM made the decisions that it did, but it has had a devastating effect on the employees of the Moraine Truck and Bus Plant and the entire Dayton area.

GM’s Bankruptcy: The Details and the Local Questions

After entering bankruptcy in an agreement to receive another $30 billion in bailout funds from the federal government, U.S. Judge Robert Gerber oversaw the bankruptcy filing. He immediately gave GM access to $15 billion of the funds and handed out the rest on June 25^th. This bailout gave the American taxpayers a 60% stake in the company, with the other 40% divided up between the UAW, GM’s creditors, and the Canadian government. These stakes came at a price. The federal government and GM had to get multiple concessions from the unions and major bondholders in the last few weeks before the bankruptcy was filed. Oddly, the other unions that represented GM workers, like the local IUE, received no stake in the company for their current and retired members.

GM lost its position on the Dow Jones, when the Dow announced that GM stock would no longer be traded after closing at an unbelievable .75 cents the Friday before the bankruptcy was announced. GM stock had been traded on the Dow since 1925.

Retirees were hit the hardest, especially those not in the UAW. 650,000 retirees and their families saw a hit to their health insurance benefits, although their pensions were saved. Local IUE union members, many forced into retirement with the closing of the Moraine Assembly Plant, saw a tremendous drop in their non-monetary retirement benefits because, unlike UAW retirees, the IUE did not have the membership to continue those benefits without the aid of GM.

It was reported that the “new” GM would emerge from bankruptcy with fewer plants, dealerships, debts, and other liabilities. Considering how much effort went into these deals with the unions and bondholders, it is odd to find that a search for property owned by GM in Montgomery County alone returns 19 pieces of property still in the possession of a bankrupt company. It has recently been reported that the City of Moraine has been trying to lure new business to the GM site but have been unable to find a buyer. In a normal bankruptcy I would think that the court would force GM to sell any property to pay back its creditors, thereby freeing up the closed Moraine Plant for new business in the City of Moraine.

To see the locations of the properties owned by GM in Montgomery County go to

http://www.mcrealestate.org/Search/GenericSearch.aspx?mode=OWNER and enter the name "General Motors" in the search box.

What has happened since?

When the announcement of the Moraine Assemble Plant’s pending closure occurred, many employees were concerned about their options. Within a few days, they were presented with a closing agreement that set out those options. There were six.

1.    Voluntary retirement, if you were eligible under the current contract.

2.    Voluntary retirement, given special circumstances agreed upon by GM and the Union if you were not eligible to retire under the current contract.

3.    Pre-retirement, if you had more than 25 years but less than 30 years.

4.    Voluntary quit (The Buy-out)

5.    Transfer option to another GM/UAW plant. New union, years of seniority transferred.

6.    Standard lay-off with 1or 2 years of subpay and insurance.

There were meetings to explain all of this and the employees had about a month and a half to make their decisions. The GM tuition assistance program and the dependant scholarships were still available to those that chose any option other than 4.

Choices were made based on an individual’s situation and the promises given to these employees by the union and the company. GM had just received approximately $24 billion in bailout money to stave off bankruptcy, so the employees felt confident in the decisions they made. Then in June 2009, GM filed for Chapter 11 bankruptcy anyway, under pressure from the White House and to receive an additional $30 billion dollars. This decision had a major impact on the closing contract with the Moraine Assembly Plant.

Interestingly, the former employees who had chosen Options 5 and 6 did not find out just how much it impacted them for six months. Many of these employees were in school, under a federal program known as TRA/TAA. They had based their ability to focus exclusively on school for two years on the fact they would receive a guaranteed income from GM. Starting the first week of January 2010, these employees saw a marked drop in their “guaranteed” income by more than $250 dollars per week. Ironically, while the union retirees were named in the Chapter 11 bankruptcy, the union itself and the laid-off employees were not named. The closing contract had been renegotiated without a vote of the employees who were considered to be still members because they had not retired or quit GM.

The Closing of the Moraine Assembly Plant

On June 3, 2008, Rick Wagoner, then chairman and CEO of General Motors, announced that, in response to lagging sales, the Moraine Assembly Plant would close sometime before the end of 2010. The plant’s only product was the GM mid-size SUV and the recent spike in gasoline prices resulted in a huge decline in sales. The company had already reduced the number of employees in the plant by almost half in 2006 when production was reduced by one shift from three to two. This news was not shocking to many at the plant. With the high gas prices, most knew it was only a matter of time and began to make plans for the closing.

The shock for workers at the plant came when, only four months later on October 3, 2008, GM announced the plant would close for good on December 23, 2008. Not only was it a shock to the employees but also to the city and county governments. Local officials had hoped that GM would consider retooling the plant for a new product. Employees who had made plans based on having two years to prepare for a job loss were disappointed. Two months was not enough time to save and prepare to be unemployed.

The final day of production was difficult for many. The majority of the workers that were left after the year-long production cuts had been at the Moraine Assembly Plant since, at least, 1995. Some employees had forged friendships within the plant that would be difficult to maintain after the plant closed. Employees came from all over the Miami Valley and as from far away as Kentucky and Indiana to work there and it would be hard to keep up friendships with people that lived an hour or two away.

To read more about the final months of the Moraine Assembly Plant and the reactions of workers visit:

www.whiotv.com

www.daytondailynews.com

www.dayton.bizjournals.com