DETROIT – When the word reached the Orion Assembly Plant, it spread along the serpentine assembly line like news of a death or natural disaster: General Motors, the biggest automaker in the world, had filed for bankruptcy protection.
On that grim day in 2009, Chevrolet and Pontiac sedans kept rolling down the line. And 1,700 worried workers stayed at their stations even as GM announced it would close the plant in a desperate bid to survive.
The unknown was the scariest part, recalled Gerald Lang, who had worked at Orion for two years installing dashboards and doors. We really had no clue what was going to happen.
There was something else that the workers didn’t know: They were witnessing the opening act of one of the greatest recovery stories in American business.
Nearly four years later, Chevrolets are still moving down the assembly line under the plant’s 82-acre roof. Lang and his co-workers now build the Sonic, the best-selling subcompact car in the nation. It’s a vehicle no one thought could be made profitably in the U.S., by a company that few people thought would last.
But GM has not only survived, it has earned $16 billion in profits in the past three years. And the industry is on track to make this year its best year since 2007.
Detroit’s improbable comeback is the work of many: President George W. Bush, who authorized the first bailout loans; President Obama, who made more loans; workers who took lower wages and focused more on quality to compete with foreign rivals; and executives and designers who developed better cars amid the financial maelstrom happening around them.
To be sure, there were victims: shareholders, auto-parts makers and other suppliers who went out of business, as well as taxpayers who will never get all their money back.
But there is no denying that American carmakers have made a remarkable recovery. Nearly 790,000 people now have jobs building cars, trucks and parts, up 27 percent from the dark days of 2009. The story of the Sonic shows how the industry, along with a community in a downtrodden state, got there.
The collapse of the industry in 2008 that nearly put GM and Chrysler out of business and cost Ford billions of dollars came from a perfect storm that included the Great Recession, expensive gasoline and the financial meltdown that dried up funding for car loans. But the automakers’ problems were years in the making.
They had business models that couldn’t generate enough cash to cover expenses. They had too many factories making too many cars and trucks. They sold too many vehicles at discounts or even steep losses just to move them out of showrooms to make room for more. And their workers earned more in wages and benefits than Japanese competitors.
Even when autoworkers were laid off, companies couldn’t get them off their books. Union-mandated jobs banks forced automakers to keep paying workers whose plants had been shut down. They got paid to sit in rooms and do crossword puzzles.
Years of losses caused the three U.S. automakers to rack up $200 billion in debt, about half the liabilities that are now strangling Greece. GM alone lost $82 billion in the four years before bankruptcy. All three companies had to pay escalating health care costs for workers and a staggering half-million retirees. At GM, medical costs for workers and retirees added $1,500 to the price of a car.
An increasingly bad situation turned worse during the 2001 recession, which was followed by rising gas prices that lasted for most of the decade. Then came the 2008 financial meltdown. As GM and Chrysler careened toward bankruptcy, President Bush stepped in, loaning $17.4 billion to GM and Chrysler just before he left office. But auto sales remained in a free fall, plummeting to a 30-year low of 10.4 million by the end of 2009.
At the Orion (pronounced OHR’-ee-uhn) plant, the recession had slowed sales of the midsized Pontiac G6 and Chevrolet Malibu cars that were made there. In February 2009, the company eliminated a shift and laid off 400 workers. The outlook darkened even more when GM announced it would dump the Pontiac brand. Since the G6 made up half of Orion’s production, workers feared the plant was doomed.
GM, meanwhile, was drowning, even with emergency loans from the government. On June 1, 2009, it became the largest American industrial company ever to file for Chapter 11 bankruptcy protection. It had just $2 billion in cash and $172.8 billion in liabilities.
The bankruptcy wiped out GM’s debts, allowed it to shed 21,000 jobs, dump 2,600 dealers and close factories, including Orion.
It was like somebody just took the heart out of you, recalled Mike Dunn, the chief United Auto Workers union bargainer at Orion. You didn’t really know if you would have a future.
As lawyers for GM and its creditors fought in court over scraps of the company, Orion’s second chance emerged.
In exchange for its $50 billion bailout, the government got a 60 percent stake in the company and GM agreed to build a tiny car known as the Sonic at one of the U.S. plants it was closing. Small-car production had long been relegated to other countries where wages weren’t as high. But GM couldn’t take government money and build a small car overseas.
At the end of June, GM made up its mind: The Orion factory would get the small car. But there was a catch. The plant had to shut down for more than a year to be revamped – a closure that would further threaten businesses in a fragile economy.
Negotiating a future
There was another obstacle. GM and the UAW had to figure out how to cut labor costs at the plant.
For decades, the UAW and automakers fought openly as the companies tried to reduce costs and the union demanded pay increases. The UAW would strike, or threaten to, and the companies would cave in.
In 2007, both sides agreed to a historic compromise on labor costs. They established a two-tier wage system that would pay new employees around $14 an hour, or half the hourly wage of older workers. Worker pay and pensions were frozen. Union trusts funded by the company and workers would take over retiree health care costs. Union President Bob King said each worker gave up at least $7,000 during the four-year contract.
But GM still couldn’t make money building the Sonic at Orion without an immediate influx of lower-wage workers. So the UAW and GM went beyond the national agreement and came up with an unprecedented solution. More lower-wage workers could be hired at Orion than any other plant in the country. Forty percent would be paid the lower wage, as opposed to a maximum of 25 percent at other factories.
Union leaders Sweeney and Dunn accepted the deal in October 2010, figuring it was better to have lower-paying jobs than none at all.
As a dreadful winter ended, GM delivered on its promise to invest at Orion. Crates of robot arms, carts and conveyor parts arrived, filling the vast open space that had frightened Dunn just a few months earlier.
Even when their company was in bankruptcy, GM engineers and designers across the world never stopped working on the Sonic, a new mini car that would take on the Honda Fit and Toyota Yaris. The Sonic had aggressive styling, better handling and more amenities like leather seats and navigation systems than the Aveo, its cheap South Korea-built predecessor.
The first Sonic, a white hatchback, rolled out of the Orion factory in August 2011.
The car hit showrooms with a sticker price of just under $14,000 – $1,300 less than the Fit. A year later, the tiny Chevy was the best-selling subcompact in the country. Last year, GM sold 81,000 Sonics. Hyundai’s Accent finished second at 61,000.
GM is confident the Sonic will soon turn a profit.