2009 was quite a year for bankruptcies: car giants GM and Chrysler and CIT Group, largest lender to small and medium sized businesses. It was the seventh-worst year on record according to Associated Press data. Below we discuss some of the largest bankruptcies and their ramifications.
In the end, even $19.4 billion in federal help wasn’t enough to keep the nation’s largest automaker out of bankruptcy. GM filed in June with a projected loss of more than 20,000 jobs. As the second largest industrial bankruptcy in history, it left the auto industry reeling, especially coming off the back of rival Chrysler’s demise the previous month.
With the Government’s backing and financing, GM speedily restructured in what has been termed a “quickie bankruptcy” before emerging as a new company on July 10, 2009 financed by the US Treasury. Many predicted a negative ripple effect for the industry and though there have been hardships endured by all, the worst has not yet been realized.
The 2008 credit market implosion dealt CIT a blow it couldn’t overcome. Like many other financial institutions, the New York-based small and mid size business lender spent years on a debt-fueled growth binge, only to land itself in hot water when the markets crashed and access to credit dried up. With thousands of businesses reliant on them, CIT filed Chapter 11 in November 2009 after failed attempts by Bondholders to shore the company up.
The case was wrapped up swiftly, with CIT developing a restructuring plan that cut $11 billion in debt off their books. Interestingly, because so many customers had been expecting CIT’s demise, the bankruptcy did not affect their day-to-day businesses. In fact, many customers did not feel the impact and some commented that the filing came so close to the end of the year, it didn’t impact the all important holiday sales season.
After some of its smaller lenders refused to reduce its debt, Chrysler filed Chapter 11 in May 2009, leaving 39,000 employees fearing for their jobs. However, all was not lost. With Government guidance, Chrysler reached a deal to combine with Fiat to stay in business.
This quick restructuring became the “test drive” for GM’s bankruptcy less than a month later. It was predicted that the industry could see a slew of consolidations following the Chrysler lash-up with Fiat but, aside from the attempted sell offs of Opel and Saab, the industry has been relatively quiet on that front.
It will be interesting to see what 2010 brings us on the bankruptcy front. Just this week, JAL, Japan’s national airline was reported to be on the brink, potentially making it one of the largest corporate failures in Japanese history. One can only wonder what the ripple effects of this have on the airline industry. Last year was a tough year for the auto industry, as it was for financial services the year before, so what is the next big bankruptcy bubble we should be looking out for? Ideas on a postcard please…
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