GM files for bankruptcy, Chrysler sale cleared

[Shadows]

Mon Jun 1, 2009 8:10am EDT
By Kevin Krolicki and John Crawley

General Motors Corp filed for bankruptcy on Monday, forcing the 100-year-old automaker once seen as a symbol of American economic might and dynamism into a new and uncertain era of government ownership.

The bankruptcy filing is the third-largest in U.S. history and the largest ever in U.S. manufacturing.

The decision to push GM into a fast-track bankruptcy, and provide $30 billion of additional taxpayer funds to restructure the automaker, is a huge gamble for the Obama administration.

But in a sign of progress in the government's high-stakes effort, a bankruptcy judge approved the sale of substantially all of U.S. automaker Chrysler's assets to a group led by Italy's Fiat SpA in an opinion filed late on Sunday.

Chrysler's bankruptcy, also financed by the U.S. Treasury, has been widely seen as a test run for the much bigger and more complex reorganization of GM.

The GM plan is for a quick sale process that would allow a much smaller GM to emerge from court protection in as little as 60 to 90 days.

"Now the hard part begins, which is making GM and Chrysler competitive. If they don't do that, then we'll be doing this all over again in a few years," said Christopher Richter, auto analyst at CLSA Asia-Pacific Markets in Tokyo.

"The immediate implication is that the companies are going to get smaller and so market share is up for grabs, which means that rivals like Toyota, Honda, Nissan and Hyundai are going to gain share."

LIFELINE

Since the start of the year, GM has been kept alive with U.S. government funding as a White House-appointed task force vetted plans for a sweeping reorganization that will be undertaken with $50 billion in federal financing.

By taking a 60 percent stake in a reorganized GM, the Obama administration is gambling that the automaker can compete with the likes of Toyota after its debt is cut by half and its labor costs are slashed under a new contract with the United Auto Workers union.

The governments of Canada and the province of Ontario agreed to provide another $9.5 billion to GM in a late addition to the plans for the bankruptcy.

GM plans to close 11 U.S. facilities and idle another three plants. It has not provided an updated target for job cuts but had been looking to cut 21,000 factory jobs from the 54,000 UAW workers it now employs in the United States.

The UAW would have a 17.5 percent stake in the "new GM." The Canadian government would own 12 percent and GM bondholders would get 10 percent.

RELUCTANT INVESTOR

Officials involved in the planning for GM said the White House was a "reluctant investor" in GM but had to prevent a liquidation that analysts say would have cost tens of thousands of jobs at a time when the economy is mired in recession.

GM alone employs 92,000 in the United States and is indirectly responsible for 500,000 retirees.

"We want a quick, clean exit (from bankruptcy) as soon as conditions permit," Treasury Secretary Timothy Geithner told students at Peking University in Beijing. "We're very optimistic these firms will emerge without further government assistance."

President Barack Obama is due to speak on the auto industry shortly before noon (1600 GMT) on Monday. A news conference by GM Chief Executive Fritz Henderson is to follow.

U.S. officials said there was no plan to provide any further funding for GM and insisted that all of the Detroit Three could survive. Ford Motor Co has not sought emergency federal aid.

"We do believe, and completely endemic in the president's decision, was a belief that this country can support three domestic successful viable auto companies," a senior Obama administration official said.

In the case of GM, the goal of restructuring is to allow it to return to profitability if U.S. industrywide auto sales recover even slightly to near 10 million annually.

Until now, to stop losing money, GM had counted on a recovery to the 16 million mark the industry last saw in 2007, officials said.

Even if GM and Chrysler emerge swiftly from bankruptcy this summer, the autos task force will stay in business -- shifting to an investment management role.

Senior administration officials said on Sunday there was plenty to keep the task force staff busy, monitoring the government's stake of about 60 percent of GM and less than 10 percent in Chrysler.

CAREFULLY ORCHESTRATED FAILURE

GM's bankruptcy is the most carefully orchestrated Chapter 11 filing in the history of American business.

The automaker's final descent started with President George W. Bush administration's emergency aid announcement on December 19 and accelerated in late March when the new Obama government gave it 60 days to restructure.

While the "new GM" is expected to emerge quickly from court protection, its shuttered plants, stranded equipment and other spurned assets would be left to liquidation in bankruptcy.

Al Koch, a managing director at advisory firm AlixPartners LLP, will be appointed chief restructuring officer in charge of liquidating those GM assets.

A veteran restructuring adviser, Koch has had prominent roles in Kmart Corp's restructuring and other turnarounds.

Over the weekend, GM won support for the government's plan from investors representing 54 percent of the company's $27 billion in bondholder debt.

Bondholders could take up to 25 percent of GM if it recovers to be worth what it was in 2004.

Founded in 1908, GM rose to dominate the U.S. and global auto industries under the stewardship of pioneering chief executive Alfred Sloan, who famously pledged that the automaker would deliver "a car for every purse and purpose."

By the mid-1950s, at the peak of its success, GM had some 514,000 employees. It accounted for about half of U.S. car production and its sales were twice as large as the No. 2 corporation, Standard Oil.

GM's stock fell to 75 cents on Friday, a level last seen during the Great Depression.

[DavidAnthony]

They shouldn’t have killed the electric car.

[Superintendent Chalmers]

Happy to see this finally happen. Chapter 11 Bankruptcy is different in america then it is here. I want to see Holden go under too Friggin Commy drivers won't be so god damn smug......On another note most of you know that Holden rebadges Korean Daewoo cars like the Barina - (Kalos), Viva - (Lacetti) , Epica and Colorado etc. Today on the way to work I saw a Daewoo Lanos 1998 model with a window sticker saying "Proud to be driving a Hoden, Australia's best!!!" I nearly pissed myself!!

[DavidAnthony]

Although they make out Holden is Australian, I think you will find not much is actually Australian.

I'm pretty sure they are mostly American and I know their v6 engines used to be German, don't know about these days.