GM Bankruptcy: History in the MakingBy Michelle Krebs June 1, 2009
By Michelle Krebs
DETROIT -- Once the largest and one of the mightiest corporations on the planet, General Motors, which only last year celebrated its centennial, makes history Monday, June 1, as it files for bankruptcy.
The automaker is asking the Southern District of New York court to grant it protection from creditors under Chapter 11 of the U.S. bankruptcy court early, to approve the transfer of most of its global assets to a new GM entity and to allow GM's operations to continue operating uninterrupted during the process.
"Today marks a defining moment in the reinvention of GM as a leaner, more customer-focused, and more cost-competitive company that, above all, can quickly generate winning bottom line results," GM President and CEO Fritz Henderson, who will hold a press briefing later Monday, said in a statement.
Continued Henderson's statement: "The economic crisis has caused enormous disruption in the auto industry, but with it has come the opportunity for us to reinvent our business. We are going to do it once and do it right. The court-supervised process we are pursuing provides us with powerful tools to accelerate and complete our reinvention, as well as strong safeguards for our customers and our business. We are focused on the job at hand, for the benefit of our customers, employees, dealers, suppliers, retirees, taxpayers, investors and other stakeholders.
"From Day One, the New GM will be well-positioned to capitalize on the award-winning vehicles we have developed and launched during the past few years, and on our investments in exciting new technologies like the Chevy Volt, so that we can build and return value to our customers and to the millions who will have a stake in our success. The new GM will play a critical role in the future of the automobile, and assure that the U.S. has a strong stake in this rapidly changing global manufacturing industry," Henderson said.
GM is expected to release a list of as many as 14 plants that will be closed or idled; it's not clear how many jobs that will involve. The bankruptcy papers likely will indicate more white-collar cuts as well, totaling as many as 3,400 people, it is expected.
Around noon, President Obama will hold a White House press conference explaining why the federal government, which is keeping the automaker afloat, has pushed GM into bankruptcy and lay out the plan of action. Henderson will follow the president with a press briefing aired from New York.
Short Bankruptcy Promised
President Obama's automotive task force insists GM's time in bankruptcy, the third-largest in U.S. history and the largest manufacturing bankruptcy, will be short, between 60 and 90 days. During that time, the federal government will provide $30 billion of additional funding to restructure GM; GM already has received close to $20 billion from the government. Obama administration officials, in a Sunday evening briefing call, insist this is the end of the line for government funding for GM.
In return for funding, the federal government will become GM's largest shareholder with a 60 percent stake in the restructured GM. That, too, insists Obama administrators will be short-lived, with the government planning to unload its GM stake as quickly as possible.
The Canadian government and its Ontarior province have agreed to chip in another $9.5 billion and will, in turn, receive a 12 percent stake. The United Auto Workers Union, through its retiree health-care fund will own 17.5 percent of the new GM. GM bondholders, 54 percent t of whom approved a sweetened offer to trade $27 billion in debt for equity in the new company over the weekend, will get 10 percent. They could eventually take up to 25 percent if GM recovers to be worth what it was in 2004.
Al Koch, managing partner for turnaround experts AlixPartners, becomes GM's chief restructuring officer. He will be in charge of liquidating those GM assets that are not transferred to the new GM. Koch played a key role in the restructuring of then Detroit-based Kmart Corp. as well as others.
Bankruptcy Process Begins
The official bankruptcy process began Monday morning with the filing for bankruptcy protection by Chevrolet-Saturn of Harlem Inc., which described a plan to sell the company to Auto Acquisition Corp., Bloomberg News reported.
Founded in 1908, GM was formed by the gathering of a number of car companies, eventually organized into an automaker that delivered "a car for every purse and purpose," as its former chief executive Alfred P. Sloan described it.
The automaker's success peaked in the mid-1950s when it employed 514,000 people and accounted for about half of all U.S. car production.
In contrast, GM's stock plummeted to 75 cents per share on Friday, a level not seen since the Great Depression. On Monday, GM was booted from the Dow Jones Industrial Average.