GM to seek fresh start through bankruptcy
The federal government will pump $30 billion into the auto giant. Taxpayers will own a 60 percent stake.
WASHINGTON - General Motors, the humbled auto giant that has been part of American life for more than 100 years, will file for bankruptcy protection today in a deal that will give taxpayers a 60 percent ownership stake and expand the government's reach into big business.
Underscoring the government's extraordinary role, President Obama planned to announce his support for GM's restructuring strategy at a midday appearance at the White House, much as he did in April when Chrysler sought court protection.
GM president and chief executive officer Fritz Henderson planned to hold a news conference in New York immediately after Obama's announcement.
Administration officials said late yesterday that the federal government would pump $30 billion into GM as it makes its way through bankruptcy court. That's in addition to the $20 billion in taxpayer money that the Treasury already lent to the automaker.
The money would come from what remains of the $700 billion rescue fund for the financial sector.
Following that infusion, "the U.S. Treasury does not believe or anticipate that any additional assistance to GM will be required," a senior administration official said last night, calling the restructuring a "permanent" solution.
Under the proposed restructuring, about 60 percent of the new GM would be owned by the United States and about 12 percent by the governments of Canada and Ontario. A union health trust would own 17.5 percent, and the company's current bondholders would get 10 percent.
The officials, speaking on condition of anonymity in advance of Obama's public remarks, said the administration expects the court process to last 60 to 90 days. If successful, GM would emerge as a leaner company with a smaller workforce, fewer plants, and a trimmed dealership force. The company will stick with its four core brands - Chevrolet, Cadillac, Buick and GMC.
"There is still plenty of pain to go around, but I'm confident this is far better than the alternative," Sen. Carl Levin (D., Mich.), said yesterday after being briefed about the developments by the president. "It's a new beginning, it's a rebirth, it's a new General Motors."
The government's ownership stake and huge financial injection represent yet another remarkable intervention into the American private sector. The Treasury has stepped in to help banks, it has taken majority ownership in insurance conglomerate American International Group, and it has guided Chrysler through bankruptcy-protection proceedings.
Despite its sizable ownership, administration officials said, the government intends to stay out of day-to-day management decisions. The government said it plans to shed its ownership stake "as soon as practicable."
"Our goal is to promote strong and viable companies that can quickly be profitable and contribute to economic growth and jobs without government involvement," a fact sheet issued by the White House and the Treasury Department said.
Still, it was the Obama administration that instructed GM to trim itself to a point that it could break even by selling 10 million cars a year. Its current break-even point is 16 million cars.
GM plans to name veteran turnaround specialist Al Koch to serve as its chief restructuring officer to help the company through bankruptcy protection, said a person familiar with the matter. The person, who spoke on condition of anonymity, was not authorized to speak about the appointment publicly.
Koch, a managing director with AlixPartners L.L.P., helped Kmart Corp. through its Chapter 11 reorganization. He will lead the separation of the automaker's assets into a "New GM" and the remaining parts of the company that will form "Old GM." Koch also will lead the management team that winds down the "Old GM" company once the automaker emerges from bankruptcy.
A majority of the Detroit automaker's unsecured bondholders have accepted a deal viewed as crucial to reorganization, and Germany agreed to loan $2 billion to GM's German unit, Opel, as part of its acquisition by a Canadian auto parts supplier.
The moves don't change much for GM, but better prepare it for a bankruptcy protection filing, said Rebecca Lindland, an auto analyst for the consulting firm IHS Global Insight.
"The more agreements GM has with its interests, the better the bankruptcy is going to go," she said. "It's not a game changer at all."
It would be the largest industrial bankruptcy in U.S. history, and the fourth-largest overall. In addition, a GM bankruptcy would be unprecedented as the federal government would pump billions more into the company, and take a huge interest in the automaker.
Yesterday, a group of large, institutional bondholders, representing 54 percent of GM bondholders, agreed to exchange their unsecured bonds for a 10 percent stake in a newly restructured company, plus warrants to purchase a greater share later. They had balked at an earlier offer that gave them 10 percent of the company without the warrants.
Beyond the bankruptcy announcement today, GM is expected to reveal 14 plants it intends to close and to name the buyer of its Hummer division.
GM's fate and the federal government's intervention were scrutinized on several Sunday morning talk shows.
"I think the government auto bailout was a big mistake," Sen. Mitch McConnell (R., Ky.) said on CNN's State of the Union program. "We could have let these companies go through the bankruptcy process much earlier . . . without all of the additional government money, and ended up in the same place."
A judge heard three days of testimony and arguments last week over the sale of most of Chrysler's assets to Italian carmaker Fiat Group SpA.
U.S. Judge Arthur Gonzalez is expected to approve the sale today pushing Chrysler L.L.C. closer to its goal of a speedy exit from bankruptcy protection.