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bankruptcy protection today as part of the Obama administration’s plan to
shrink the automaker to a sustainable size and give a majority ownership stake
to the federal government.
GM’s bankruptcy filing is the fourth-largest
in
history and the largest for an industrial company. The company said it has
$172.81 billion in debt and $82.29 billion in assets.
“The General Motors board of directors
authorized the filing of a Chapter 11 case with regret that this path proved
necessary despite the best efforts of so many,” a company statement said.
“Today marks a new beginning for General Motors. … The board is
confident that this New GM can operate successfully in the intensely competitive
market and around the world.”
As it reorganizes, the fallen icon of
American industry will rely on $30 billion of additional financial assistance
from the Treasury Department and $9.5 billion from
billion in taxpayer money GM already has received in the form of low-interest
loans.
GM will follow a similar course taken by
smaller rival Chrysler LLC, which filed for Chapter 11 protection in April. A
judge gave Chrysler approval to sell most of its assets to
closer to a quick exit from court protection, possibly this week.
The plan is for the federal government to
take a 60 percent ownership stake in the new GM. The Canadian government would
take 12.5 percent, with the United Auto Workers getting a 17.5 percent share
and unsecured bondholders receiving 10 percent. Existing GM shareholders are
expected to be wiped out.
Albert Koch, who helped Kmart Corp. through
its Chapter 11 reorganization, will serve as GM’s chief restructuring officer.
President Barack Obama is scheduled to
address the nation about GM’s future at midday from
and GM CEO Fritz Henderson is to follow him with a news conference in
Administration officials, speaking on
condition of anonymity in advance of Obama’s remarks, said they expect the
bankruptcy court process to last 60 to 90 days. If successful, GM will emerge
as a leaner company with a smaller work force, fewer plants and a trimmed
dealership network.
GM’s filing comes 32 days after a Chapter 11
filing by Chrysler, which also was hobbled by plunging sales of cars and trucks
as the worst recession since the Great Depression intensified.
The sale to Fiat means Chrysler could be out
of bankruptcy within the government’s original timeframe of 30 to 60 days.
Chrysler’s plan gives a 55 percent stake of the new company to a union-run
trust for retirees. Fiat gets a 20 percent stake to Fiat that can ultimately
grow to 35 percent. The
and Canadian governments get smaller pieces.
The third of the one-time Big Three, Ford
Motor Co., has also been stung hard by the sales slump, but it avoided
bankruptcy by mortgaging all of its assets in 2006 to borrow roughly $25
billion, giving it a financial cushion GM and Chrysler lacked.
GM will move forward with four core brands –
Chevrolet, Cadillac, Buick and GMC – and cut four others. The company plans to
cut 21,000 employees, about 34 percent of its work force, and reduce the number
of dealers by 2,600. GM said it was finalizing a deal to sell Hummer, and plans
for Saturn are expected to be announced within weeks.
“There is still plenty of pain to go
around, but I’m confident this is far better than the alternative,” said
Sen. Carl Levin, D-Mich. “It’s a new beginning, it’s a rebirth, it’s a new
General Motors.”
GM, whose headquarters tower over downtown
the filing was not an acknowledgment of failure, but a necessary way to cleanse
itself in an orderly fashion of problems and costs that have dogged it for
decades.
GM shares fell as low as 27 cents in morning
trading today, their lowest price in the company’s 100-year history. The News
Corp. unit that oversees the Dow Jones industrial average said GM will be
kicked out of the index on June 8 and be replaced by Cisco Systems Inc. The
index’s rules prohibit it from including companies that have filed for
bankruptcy.
The bankruptcy filing represents a dramatic
downfall for GM, which was founded in 1908 by William C. Durant, who brought
several car companies under one roof and developed a strategy of “a car
for every purse and purpose.” Longtime leader Alfred P. Sloan built the
global automaker into a corporate icon.
GM first sought help from the Bush
administration and Congress last year as it was in the midst of being staggered
by $30.9 billion in losses and seeing its cash resources shrink by more than
$19 billion.
Consumers, worried about the economy and the
future of GM, shied away from the company’s cars and trucks this year even
after President George W. Bush promised loans and Obama followed through with
billions more in assistance – plus a stiff set of new requirements GM was
ordered to meet.
When GM failed to do so by a March 31
deadline, Obama forced out CEO Rick Wagoner and replaced him with
Wagoner served at the helm since 2000 and
was the face of GM when he first flew on a company jet to ask Congress for aid.
After a firestorm of negative publicity, Wagoner rode in a hybrid Chevrolet
Malibu from
questions before lawmakers.
But that amounted to only a sideshow as the
automaker’s financial position worsened. Its revenues plunged almost 50 percent
in the quarter ended March 30 and it racked up another $6 billion in losses.
The Henderson-led GM faced a government-imposed
deadline today to restructure, slash costs and modify contracts with its union
and dealers. But meeting most of those demands, plus a late agreement by many
bondholders to swap the $27 billion in debt they are owed for shares in a new
GM, were not enough to prevent the court filing.
Some bondholders might still fight GM’s
reorganization plan, but the company and Treasury hope the 54 percent who
supported the debt-for-equity offer will convince the judge that its a fair
deal.
“There is no other sale, or other
potential purchasers, present or on the horizon,”
in bankruptcy court. “The only other alternative is the liquidation of the
debtors’ assets that would substantially diminish the value of GM’s business
and assets, (and) throw hundreds of thousands of persons out of work and cause
the termination of health benefits and jeopardize retirement benefits for
current and former employees and their families.”
It was an all-out sprint to today’s filing,
as GM quickly sought to nail down deals with its union, bondholders and sell
off brands and along with most of its Opel operations in
in an effort to appear in court with a near-complete plan to quickly emerge as
a leaner company with a chance to become profitable.
The German government yesterday agreed to
lend GM’s Opel unit $2.1 billion, a move necessary for Magna International Inc.
to acquire the company. The Canadian auto parts supplier will take a 20 percent
stake in Opel and Russian-owned Sberbank will take a 35 percent, giving the two
businesses a majority. GM retains 35 percent of Opel, with the remaining 10
percent going to employees.
In the
concessions, announced Friday, will save GM $1.3 billion per year. The new deal
freezes wages, ends bonuses and eliminates some noncompetitive work rules.
It also moves billions in retiree health
care costs off GM’s books. In exchange for its ownership stake, $6.5 billion of
interest-bearing preferred shares, and a $2.5 billion note, the trust will take
on responsibility for all health care costs for retirees starting next year.
Higher health care costs alone accounted for a $1,500-per-car cost gap between
GM and Japanese vehicles.
GM will offer buyouts and early retirement
packages to all of its 61,000 hourly workers as it plans to shrink overall
employment. The company also has about 27,000 white collar employees. In
contrast, GM employed 618,000 Americans in 1979, more than any other company.
GM earlier outlined a plan to cut about
1,100, or 40 percent, of its dealers by the end of 2010. It also plans to shed
about 500 dealerships that market the Saturn, Hummer and Saab brands.
But just cutting labor and overhead costs
won’t be enough to save the company. It also has been working to streamline its
engineering and design, as well as standardize many parts so they can go into
multiple models.
The once powerful GM earns a place in
history as the largest
industrial company to file for bankruptcy protection, and the fourth-largest company
overall to do so based on its $82.29 billion in assets.
Lehman Brothers Holdings Inc.’s Sept. 15
bankruptcy filing is the nation’s largest with $691.1 billion in assets, and
likely served as a catalyst for GM – and Chrysler’s – downfall, as it hastened
the erosion of credit markets, making it more difficult for consumers and
dealers to finance new vehicles.
Washington Mutual Inc.’s bankruptcy filing
11 days later ranked second with $327.9 billion in assets, according to
BankruptcyData.com. That’s followed by WorldCom Inc.’s 2002 filing, which
listed $103.9 billion in assets.
Chrysler’s bankruptcy filing now ranks
seventh with $39.3 billion in assets.
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