In December of 2008, GM approached Congress and asked for a bridge loan to allow them to restructure. While the House passed legislation to accomplish this, it was not passed through the Senate. Days later, the Bush administration initiated a loan through the TARP program which would provide $14 Billion in loans and stock purchases to GM and follow many of the guidelines that were sought in that legislation. This included a restructure plan that would have to be approved by the Obama administration.
In February of 2009 GM presented their plan to the Obama administration. The plan was seen as preferential to union workers by bondholders and many stated their intention to oppose it. In March of 2009 President Obama announced that he was not accepting the viability plan put forth by GM, but that he was authorizing more funds to keep the company afloat. President Obama also initiated programs to provide funds to companies that supply parts to GM and Chrysler.
GM was placed into bankruptcy on June 1, 2009 and the company was supplied with an additional $30.1 Billion dollars, bringing the total loans and stock purchases to $50 Billion. The company was made a private entity at that time.
The bankruptcy restructuring plan agreed upon by the government and GM gave the US government a 60% share in the company and gave the Canadian government a 12% share. The United Auto Workers gave up a health and savings plan worth $20 Billion in exchange for a 17.5% share in the company and over $8 Billion in debt and preferred stock. Bondholders held $27 Billion in stock prior to the collapse and received only a 10% equity share in the new GM company.
Throughout the bankruptcy process, President Obama stated that he had not desire to run a car company and would not interfere with daily GM business. This is at odds with numerous actions taken before and after the bankruptcy filings.
- Days before GM was placed into bankruptcy, the Obama administration demanded and received the resignation of company CEO Rick Wagoner.
- The Obama administration pushed for the closing of numerous GM dealerships
- The substance of the bankruptcy settlement was heavily tilted to favor unions - a result that many people suggest would not have occurred without political motivations
- The bankruptcy settlement allowed the US government, the Canadian, and the UAW Union to appoint chairs of the board - an action that would directly change the direction of the company for years
The TARP program established specific rules on what could be purchased with the funds. These rules stated that only Preferred Stock or Common stock without voting rights could be purchased. The reason for this was to prevent the government from controlling a company it purchased stock in through TARP funds. President Bush violated those rules when he used the money to provide a loan to GM. President Obama further violated those laws when he purchased stock in the company and used the ownership of that stock as authority to appoint board members. The creation of programs to give funds to companies simply because they depended on GM and Chrysler for business was also not allowed in TARP documents.
