WASHINGTON - General Motors filed for Chapter 11 bankruptcy protection Monday 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 U.S. 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,” GM Chairman Kent Kresa said in a written statement. “Today marks a new beginning for General Motors. ... The board is confident that this New GM can operate successfully in the intensely competitive U.S. 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 Canada. That’s on top of about $20 billion in taxpayer money GM already has received in the form of low-interest loans.
Late Monday, U.S. bankruptcy court judge Robert Gerber gave interim approval for the Detroit-based automaker’s use of a total of $33.3 billion in bankruptcy financing, with $15 billion available for use over the next three weeks. He will rule on final approval of the financing on June 25. Gerber also approved GM’s sale procedures, setting a sale approval hearing for June 30.
“Our agreement with the U.S. Treasury and the governments of Canada and Ontario will create a leaner, quicker more customer and completely product-focused company, one that’s more cost competitive and has a competitive balance sheet,” CEO Fritz Henderson said at a news conference in New York. “This new GM will be built from the strongest parts of our business, including our best brands and products.”
The Detroit automaker said warranty coverage, service and customer support will continue uninterrupted, plants will continue to make cars and trucks, and essential suppliers and GM’s 235,000 employees worldwide will continue to be paid. GMAC Financial Services said in a statement that it will continues to provide automotive financing to GM and Chrysler dealers and customers, and the federal Pension Benefit Guaranty Corp. said workers’ pension plans remain safe.
GM will follow a similar course taken by smaller rival Chrysler LLC, which filed for Chapter 11 protection April 30. A judge on Sunday gave Chrysler approval to sell most of its assets to Italy’s Fiat, moving the U.S. automaker 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.
GM shares fell as low as 27 cents in Monday morning trading, their lowest price in the company’s 100-year history, but rebounded to rise 10 cents from Friday’s close to 85 cents in afternoon trading. On June 8, Cisco Systems Inc. will replace GM in the Dow Jones industrial average, which excludes companies that have filed for bankruptcy. Standard & Poor’s also will remove GM from its S&P 500 index Tuesday, with secondary education provider DeVry Inc. taking the automaker’s place.
The government’s partial stake in GM comes on top of a far smaller ownership of Chrysler, as well as significant federal equity in banks, the AIG insurance giant and two mortgage industry titans — all victims of an economic crisis unrivaled since the Great Depression.
But the president said the actions were part of a “viable, achievable plan that will give this iconic company a chance to rise again.”
The president said the government would refrain from playing a management role in all but the most critical areas.
“Our goal is to help GM get back on its feet ... and get out quickly,” he said.
Henderson declined to offer a firm timeline for how long it would take the government to sell its stake in GM, but he indicated it could take some time.
“These are a substantial block of shares,” Henderson said. “This is a question of years, not months.”
GM said it expects 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.
“We’re confident that we will move fast,” Henderson said. “Not with a sense of urgency. We’re talking about pure unadulterated speed.”
GM said Monday that it will permanently close nine more plants and idle three others.
The Pontiac, Mich., and Wilmington, Del., assembly plants will close this year, while plants in Spring Hill, Tenn., and Orion, Mich., will shut down production but remain on standby. One of the idled plants, or GM’s Janesville, Wis., plant that closed in April, will be retooled to build a small car that GM had originally planned to build in China.
Seven powertrain and parts stamping plants will be closed starting in June 2010, while an additional stamping plant will be idled but remain in a standby capacity.
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 its 6,100 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.
The third of the one-time Big Three, Ford Motor Co., has also been stung hard by plunging sales of cars and trucks, 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.
Ford issued a statement Monday saying it “remains absolutely committed to continuing to make progress on our transformation plan without accessing emergency taxpayer assistance from the U.S. government.”
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. (www.msnbc.msn.com - img.worldcarfans.com - www.marktalk.com)
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