General Motors (GM) was founded in September of 1908. On June 1, 2009, at 8 a.m. -- almost 101 years later -- it ceased to exist, and control was handed over to turnaround executive Al Koch. Thanks to $19.4 billion in loans and $30.1 billion more in debtor-in-possession financing, a huge amount of effort by the U.S. government and GM's management, unions, dealers, suppliers and bondholders, the effects of that failure will be terrible, but not catastrophic.
The U.S. will own 60 percent of the new GM, which will include Chevy, Buick, GMC and Cadillac. Canada will take 12 percent after lending GM $9.5 billion, the UAW 17.5 percent (as payment for $9.4 billion of its $20 billion in health care obligations) with warrants to buy 2.5 percent more, the bondholders 10 percent to as high as 25 percent through warrants, and old GM common shareholders roughly zero. Twelve to 20 more GM factories will close, 21,000 union workers will be fired, and 2,400 GM dealers will shut down.
To help other companies avoid GM's fate, it's worth exploring the five reasons that GM failed:
1. Bad financial policies. You might be surprised to learn that GM has been bankrupt since 2006 and has avoided a filing for years thanks to the graces of the banks and bondholders. But for years it has used cars as razors to sell consumers a monthly package of razor blades -- in the form of highly profitable car loans.