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.
The Detroit automaker said warranty coverage, service and customer support will continue uninterrupted, and employees and essential suppliers 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.
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 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.
President Barack Obama is scheduled to address the nation about GM's future at midday from Washington, and GM CEO Fritz Henderson is to follow him with a news conference in New York.
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 revealed 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 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'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 U.S. 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 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 11 cents from Friday's close to 86 cents in midday trading. 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 Henderson.
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 Detroit to Washington for a second set of withering 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 June 1 deadline 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," Henderson said in an affidavit filed Monday 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 Monday'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 Europe 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 on Sunday 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 U.S., the UAW's ratification of 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.
A person familiar with GM's plans said the automaker has no plans to accelerate the dealership cuts that were already announced. The person declined to be named because these details have not been made public.
The person said dealerships that the company is planning to terminate began recieving wind-down agreements Monday.
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 U.S. industrial company to file for bankruptcy protection, and the fourth-largest company overall to do so based on its $82.29 billion in assets as of March 31.
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.
GENERAL MOTORS TO CLOSE 12 PLANTS as part of GM BANKRUPTCY
General Motors Corp. said Monday it will permanently close nine more plants and idle three others to trim production and labor costs under bankruptcy protection.
Six of the plants are in GM's home state of Michigan, which has already been hard-hit by job cuts in the auto industry.
GM's assembly plant in Wilmington, Del., will close in July, followed by its Pontiac, Mich., pickup truck plant in October.
Assembly plants in Spring Hill, Tenn., and Orion, Mich., will end production this fall but remain on "standby," meaning workers can be called back should the company need to increase production. One of those plants would be retooled to produce a subcompact vehicle that GM had originally planned to build in China.
Todd Horton, editor of the newsletter at the Spring Hill factory's United Auto Workers local, said the 2,500 employees got the news of the shutdown Monday morning. He said the Chevrolet Traverse crossover vehicle built there will be made in Lansing, Mich., instead.
Five GM powertrain plants, which make engines and transmissions, will close by December 2010. They are in Livonia, Flint and Ypsilanti Township, Mich.; Parma, Ohio; and Fredericksburg, Va.
Parts stamping plants in Indianapolis and Mansfield, Ohio, also will close starting next year. A stamping plant in Pontiac, Mich., will shut down production by December 2010 but remain in standby status.
In addition to the closures revealed Monday, a powertrain plant in Massena, N.Y., closed May 1, and GM previously announced the closure of a Grand Rapids, Mich., stamping plant, slated to shut down this month.
GM said it will also close service and parts warehouses in Boston, Jacksonville, Fla., and Columbus, Ohio, by the end of this year.
Delaware Gov. Jack Markell said Troy Clarke, GM's head of North American operations, informed him Sunday night that the Wilmington plant would close. GM has downsized the work force at the plant, which makes the Pontiac Solstice and Saturn Sky, over several years. GM plans to sell off Saturn and phase out its Pontiac line.
"GM has sent many strong signals for the past four years that it was leaning toward closing this plant," said the governor in a statement. "But that does not make this news any less unfortunate or soften its impact on the workers and their families."
Officials will deploy teams of workers from the state departments of labor and health and social services to help workers with training and government assistance, said the governor's spokesman, Joe Rogalsky said.
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