Introduction
Since 1908, General Motors (GM) is primarily engaged in automotive production and marketing and financing and insurance operations. GM designs, manufactures, and markets vehicles worldwide, having its largest operating presence in North America. By 2008, GM became vulnerable to the auto industry crisis, which they were not able to meet obligations. Over the years, GM was a dominating force in the auto industry. However, rising labor costs, concessions made to the unions, higher gas prices and a recession, GM was heavily burdened and could not provide the sufficient marketing funds for any one of its product lines. The U.S. government agreed to lend $13 billion in order to buy time to develop a restructuring plan (DePamphilis, 2012, p.648). The restructure plan impacted employees and operations in U.S. and Canada. With mergers and acquisition activities, the intent is to preserve and provide jobs to the community. However, this was not the case with GM. Was it justified to reduce the workforce? Therefore, the review of the bankruptcy steps taken by GM will determine if the restructure was successful.
Pension Plan
General Motors pension fund obligations and health care obligations appear to threaten the future of the company. Majority of General Motors’ U.S. employees are members of the United Auto Worker (UAW) Union, which ensures health insurance for its members by entering into contractual agreements with employers. In the 1990’s the UAWs’ officers and GM’s senior managers agreed to high pension and health benefits in exchange for reduced increases in wages. In addition, health care benefits are tax-free income for workers. Even retired workers are covered. It seemed like a low-risk deal for GM, but it appeared that nobody thought about the price effects on health care of Medicare. GM is required to incur heavy expenditure on health insurance for its U.S. employees. As medical costs continue to rise, this has an adverse effect on the profitability. Following bankruptcy, the new firm had to plan to reduce its 244,000 workforce by 27,000 in 2012 (DePamphilis, 2012, p.650). Therefore, restructure the board with Canada and UAW trust, it made logical sense to reduce its workforce and close designated production plants across to achieve an improve financial position.
Debtor in Possession (DIP) Financing
Under Chapter 11 bankruptcy, a debtor can continue operating the business while in bankruptcy. However, to fund operations the company may need additional cash as it undergoes what is often a lengthy bankruptcy process. The debtor’s options are to either use cash collateral or obtain DIP financing. Cash collateral includes cash on the balance sheet, or cash raised through a 363 sale or a liquidation. DIP financing includes loans issued on a secured or unsecured basis. Debates raged in 2008 over if and how to bailout the failing auto industry in the United States. Those against it saw this bailout as an unacceptable “passing-of-the-buck” to taxpayers. I would argue that mismanagement caused the companies to fail and they now deserve to be dismantled organically by the free-market forces so that new entrepreneurs may arise. This government bailout is the largest DIP financing, which the government owns 60.8 percent business (DePamphilis, 2012, p.650). The benefit of this approach was that it made sense to allow GM to continue operations. The initial public offering (IPO) raised enough funds to reduce government ownership to 33 percent (DePamphilis, 2012, p.651). It will take awhile to repay the government’s initial investments. With GM stock price listed at $36.51 and with positive trends in earning per share (Reuters, 2013), GM has come a long way since filing for Chapter 11 bankruptcy in 2009. After a shaky four years, including a government bailout and a new IPO, GM recently rejoined the S&P 500 in the beginning of June (USA Today, 2013). From the consumer perspective, the government is providing tax credits to buyers of GM’s new all electric car, the Chevrolet Volt (DePamphilis, 2012, p. 651). If the stock price tripled, the government would have regained its initial investment. However, consistent growth would be difficult to achieve against the current competition and rising gas prices. Therefore, the “new” GM must continue to focus on cost-cutting operation and better vehicle pricing in order to continue to increase profit margins.
363 Sale Section 363 allows a firm to enter a court-supervised sale of assets. Section 363 of the Bankruptcy Code provides a useful tool for distressed companies seeking to sell their assets and for buyers looking to purchase assets at potentially bargain prices. These types of sales, commonly referred to as “363 Sales,” are more efficient than a sale under a plan of reorganization and can present buyers with many benefits that cannot be obtained in a sale outside of bankruptcy. As a result, the trend is for parties to prefer, and courts to permit, sales of a company’s assets in the context of bankruptcy, outside of a plan of reorganization.
Section 363 sale is being used with increased frequency in an economy where many struggling companies are finding themselves short on cash, overburdened with debt and lacking in options for financing. Using a Section 363 sale is a better option for keeping the company operating as a going concern rather than by spending months or years following the often long, and expensive, processes of a traditional Chapter 11. Therefore, in the case of GM, the 363 sale is a logical choice. The resolution of the GM 363 split the firm into two companies – U.S. and Canada, owned by U.S. and Canadian governments, UAW trusts and creditors of “Old GM” (DePamphilis, 2012, p.630). The sale transferred the “good” assets free and clear of any liens, claims and encumbrances. The remaining assets were liquidated and proceeds were distributed to the creditors by seniority.
Conclusion
When a firm is financially distress, the firm is characterized by declining asset value, liquidity and cash value. Bankruptcy or liquidation is an alternative restructuring or exit strategy for the failing firm. DIP financing can be obtained to continue operations while in Chapter 11 bankruptcy proceeding. In the case of GM, DIP financing and 363 sale were effectively used. GM's results showed the impact of changes made during the bankruptcy process in the summer of 2009, when it closed plants, changed labor contracts, and shed weaker brands and dealerships. The moves have allowed the company to be position the new restructure company into a profitable profile.

References
DePamphilis, D. M. (2012), Mergers, Acquisitions, and other Restructuring Activites.
Sixth Edition. Retrieved September 14, 2013 from http://myclasses.caluniversity.edu/mod/lti/view.php?id=83138

Reuters (2013). Retrieved September 15, 2013 from http://www.reuters.com/finance/stocks/financialHighlights?symbol=GM

USAToday (2013). Retrieved September 15, 2013 from http://www.usatoday.com/story/money/business/2013/06/29/gm-recovery/2474423/