GM to file for bankruptcy protection
General Motors Corp., long the symbol of American might and lately a stark reminder of the nation’s failings, will file the largest industrial bankruptcy in U.S. history today, according to senior Obama administration officials.
The move, part of a government-led restructuring, ends months of anxiety and uncertainty about the legendary automaker, which only a decade ago was the world’s largest company. GM will formally succumb to years of missteps, changing consumer tastes and a historic collapse of global auto sales, and will leave the government with a 60% stake in the company.
To keep GM afloat, the Obama administration will add $30.1 billion in taxpayer funds to the $20 billion already provided. That will make GM the second-largest recipient of bailout money, behind insurance giant American International Group.
GM will join Chrysler as the bankrupt duo of Detroit’s once-formidable Big Three.
Chrysler, which filed April 30, received court approval late Sunday to transfer most of its assets to a new entity run by Italian automaker Fiat, paving the way for the company to emerge from bankruptcy as soon as this week.
The Obama administration is touting the GM filing as a painful but necessary court-supervised restructuring that will make the company profitable again and a leader in producing fuel-efficient vehicles. The only other option, the government has said, would be a liquidation that could put tens of thousands out of work throughout the industry and deal a severe blow to the economy.
It also will leave the federal government in the unusual -- and potentially uncomfortable -- position of holding a majority stake in GM, which is the top carmaker in the U.S. by volume and No. 2 globally. Administration officials said they hoped to shed the investment as soon as possible, and, meantime pledged to keep their hands off daily operations.
President Obama will announce the bankruptcy filing in a White House speech this morning, the end result of a 60-day restructuring challenge he gave to GM this spring, senior administration officials said Sunday. GM Chief Executive Fritz Henderson then will hold a news conference in New York, where the company will submit its filing in Bankruptcy Court.
Like Chrysler, GM would transfer its viable business lines to a new GM company created in bankruptcy, leaving much of its debt and unwanted assets to be liquidated in the old GM.
Unlike the sudden bankruptcy of Lehman Bros. last September, which helped trigger the severe financial crisis and launched the government’s unprecedented intervention into corporate America, GM’s Chapter 11 reorganization is a carefully planned and long-telegraphed petition spearheaded by the administration. It aims to help the automaker emerge from bankruptcy in two to three months as smaller, leaner and more competitive.
The administration doesn’t expect to provide GM with any taxpayer money beyond the amount currently planned.
“One never says never . . . but this is it in respect to support for GM,” said a senior official, who spoke on condition of anonymity because the bankruptcy had not been filed.
Although the filing has been expected, the fact that GM has been reduced to bankruptcy is a startling development.
The century-old automaker was for decades the very symbol of American corporate power, selling about half the cars on the road in the United States in the 1950s and 1960s. Today, GM’s U.S. market share has dropped below 20% as the company has steadily ceded ground to Japanese brands. And Toyota Motor Corp. last year edged GM in global sales, dethroning the Detroit automaker after 76 years on top.
GM used to employ more than half a million American workers; today, fewer than 100,000 get their paychecks from the company affectionately known as “the General.”
“This is a historic and important moment,” said Ronald Seeber, a vice provost at Cornell University and specialist in industrial history. “It’s very, very significant and truly the last stage of the decline of the American auto industry.”
Senior administration officials took pains Sunday to say the government intended to be “passive investors” with its 60% ownership stake. The Canadian government will get a 12% equity stake in exchange for providing $9.5 billion in bankruptcy financing to GM.
The U.S. government “will only vote on core governance issues, including the selection of a company’s board of directors and major corporate events or transactions,” according to the White House.
One senior administration official added, “The government will not interfere with or exert control over day-to-day operations.”
But the Obama administration took an activist role in forcing out former GM CEO Rick Wagoner this spring, replacing him with Henderson. And some lawmakers have raised concerns about government involvement in decisions about which GM plants to idle. Administration officials would not comment on any GM operational issues Sunday.
GM is preparing to close at least 11 more plants, idle three others, sell or eliminate four of its brands and end its relationship with more than 40% of its franchised dealers.
It will be an automaker with no major European presence -- GM is selling German-based Adam Opel unit to Canadian parts supplier Magna International -- and thus one with a renewed focus on the crucial North American market.
The goal, administration officials said, is for the automaker to be able to make a profit in a U.S. market where only 10 million vehicles sell, industrywide, per year. As recently as 2007, U.S. consumers bought 16.1 million cars and trucks. Through the first four months of this year, they’re on an annual pace to buy only 9.5 million.
Last November, with auto sales plummeting because of the economic downturn, the chief executives of GM, Chrysler and Ford initially asked Congress for a combined $25 billion. But their pitch fell flat, setting off six months of wrangling over the industry’s fate.
At the end of March, Obama gave Chrysler 30 days to arrange a merger with Italy’s Fiat. At the same time, Obama ousted GM’s Wagoner and gave the company 60 days to undergo drastic restructuring. The president began laying the groundwork for a bankruptcy by promising the government would guarantee the warranties of GM and Chrysler vehicles.
Chrysler, the No. 4 U.S. automaker, paved the way for GM’s bankruptcy filing, revamping its contract with the United Auto Workers union and obtaining concessions from many bondholders before entering Chapter 11.
GM is expected to exit bankruptcy with less than half its current debt load. The government will swap most of the $50 billion it will have lent GM for the equity stake, leaving only $8.8 billion in debt to the Treasury. GM also will owe $9 billion to the UAW in preferred shares and secured notes.
By striking deals with key constituencies, GM could move through Chapter 11 as smoothly as Chrysler has, officials said. They estimated GM would emerge from bankruptcy protection in 60 to 90 days.
GM last week reached a new accord with the UAW that will cut the company’s liabilities to a trust for retiree healthcare by half, while also cutting production costs significantly and setting the stage to reduce its workforce by 21,000 more.
In exchange, the union’s healthcare trust will receive a 17.5% stake in GM, along with warrants to purchase an additional 2.5% share in the future.
GM was also able to persuade the majority of holders of $27.1 billion in its bonds to swap their debt for a 10% share in the company, plus warrants to buy 15% more down the road.
The automaker said Sunday that 54% of those bondholders, by value, agreed to the swap, a sufficient amount to allow the plan to continue.