White House: General Motors to file for bankruptcy
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White House: General Motors to file for bankruptcy
Originally Posted by Yahoo!
WASHINGTON – General Motors, the humbled auto giant that has been part of American life for more than 100 years, will file for bankruptcy protection on Monday in a deal that will give taxpayers a 60 percent ownership stake and expand the government's reach into big business.
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.
Underscoring the government's extraordinary role, President Barack 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 CEO Fritz Henderson planned to hold a news conference in New York immediately following Obama's announcement.
Administration officials said late Sunday the federal government would pump $30 billion dollars into GM as it makes its way through bankruptcy court. That's besides the $20 billion in taxpayers' money that the Treasury already lent to the automaker.
The $30 billion is to help GM through the Chapter 11 proceeding and move it through its restructuring plan. It doesn't have the money to run the business right now. The money would come from what remains of the $700 billion rescue fund for the financial sector.
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 will emerge as a leaner company with a smaller work force, fewer plants and a trimmed dealership force. The company will stick with its four core brands — Chevrolet, Cadillac, Buick and GMC — and jettison 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.
"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 Sunday 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 represents 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. It says it intends to shed its ownership stakes "as soon as practicable."
The day to day operations will be carried out by GM's management. But a majority of the board of directors will change and the administration will have a hand in helping select them.
"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 Obama who ordered the firing of former GM CEO Richard Wagoner a month ago. And 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. It's current break even point is 16 million cars.
Even as the White House stressed that it would run the day-to-day operation of the car company, the arrangement was fraught with potential conflicts. The Obama administration has proposed tougher fuel efficiency requirements that GM will need to abide by and has pumped billions into the auto company's lending arm and assured consumers that it will backstop GM warranties.
GM plans to name turnaround executive 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 LLP, is a veteran turnaround specialist who 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 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."
On Sunday 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 Monday, GM is expected to reveal 14 plants it intends to close and name the buyer of its Hummer division. One of those plants, however, will reopen as a new small car factory. The decision to build the new car in the United States appears to address previous labor and congressional concerns that GM was considering importing a small car from its plants in China.
By building the car in the U.S., the share of U.S. produced cars for U.S. sale will increase from 66 percent to more than 70 percent.
In Germany on Sunday, the government agreed to loan GM's Opel unit $2.1 billion, a move necessary for Magna International Inc. to acquire the company.
The Canadian auto parts supplier Magna 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.
The German funds are available to Opel immediately, as it attempts to shield itself from cuts if GM files for bankruptcy protection. Opel employs 25,000 people in Germany, nearly half of GM Europe's work force. Under the deal, four factories in Germany would stay open saving jobs.
Treasury Secretary Timothy Geithner, who was traveling to China, followed the developments closely. The Treasury on Thursday offered bondholders 10 percent of a newly formed GM's stock, plus warrants to buy 15 percent more to erase the debt. Last week, GM withdrew an offer of 10 percent equity after only 15 percent of the thousands of bondholders signed up.
The current 54 percent acceptance represents only $14.6 billion, but by lining up support in advance of a bankruptcy protection filing, GM is likely to find it easier to persuade a judge to apply terms of the sweetened offer to the rest of its unsecured debt.
It could also help the automaker get through the court process more quickly, said Robert Gordon, head of the corporate restructuring and bankruptcy group at Clark Hill PLC in Detroit.
The company made a huge stride toward restructuring Friday when the United Auto Workers union agreed to a cost-cutting deal.
GM's fate and the federal government's intervention was scrutinized on several Sunday morning talk shows.
"I think the government auto bailout was a big mistake," said Sen. Mitch McConnell, R-Ky., on CNN's "State of the Union" program. "We could have let these companies go through the bankruptcy process much earlier."
In a typical Chapter 11 bankruptcy case, the company files a plan of reorganization that must be voted on by creditors. In each class of creditors, the plan would have to be approved by holders of two-thirds of the claims and a majority of the number of individual creditors who vote.
But the GM case is anything but ordinary, and it appears the company will sell some or all of its assets to a new entity that would become the new GM, rather than submit a plan to reorganize the old company.
GM's stock tumbled to the lowest price in the company's 100-year history on Friday, closing at just 75 cents after trading as low as 74 cents. In a Chapter 11 bankruptcy reorganization, the shares would become virtually worthless.
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.
Underscoring the government's extraordinary role, President Barack 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 CEO Fritz Henderson planned to hold a news conference in New York immediately following Obama's announcement.
Administration officials said late Sunday the federal government would pump $30 billion dollars into GM as it makes its way through bankruptcy court. That's besides the $20 billion in taxpayers' money that the Treasury already lent to the automaker.
The $30 billion is to help GM through the Chapter 11 proceeding and move it through its restructuring plan. It doesn't have the money to run the business right now. The money would come from what remains of the $700 billion rescue fund for the financial sector.
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 will emerge as a leaner company with a smaller work force, fewer plants and a trimmed dealership force. The company will stick with its four core brands — Chevrolet, Cadillac, Buick and GMC — and jettison 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.
"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 Sunday 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 represents 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. It says it intends to shed its ownership stakes "as soon as practicable."
The day to day operations will be carried out by GM's management. But a majority of the board of directors will change and the administration will have a hand in helping select them.
"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 Obama who ordered the firing of former GM CEO Richard Wagoner a month ago. And 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. It's current break even point is 16 million cars.
Even as the White House stressed that it would run the day-to-day operation of the car company, the arrangement was fraught with potential conflicts. The Obama administration has proposed tougher fuel efficiency requirements that GM will need to abide by and has pumped billions into the auto company's lending arm and assured consumers that it will backstop GM warranties.
GM plans to name turnaround executive 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 LLP, is a veteran turnaround specialist who 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 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."
On Sunday 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 Monday, GM is expected to reveal 14 plants it intends to close and name the buyer of its Hummer division. One of those plants, however, will reopen as a new small car factory. The decision to build the new car in the United States appears to address previous labor and congressional concerns that GM was considering importing a small car from its plants in China.
By building the car in the U.S., the share of U.S. produced cars for U.S. sale will increase from 66 percent to more than 70 percent.
In Germany on Sunday, the government agreed to loan GM's Opel unit $2.1 billion, a move necessary for Magna International Inc. to acquire the company.
The Canadian auto parts supplier Magna 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.
The German funds are available to Opel immediately, as it attempts to shield itself from cuts if GM files for bankruptcy protection. Opel employs 25,000 people in Germany, nearly half of GM Europe's work force. Under the deal, four factories in Germany would stay open saving jobs.
Treasury Secretary Timothy Geithner, who was traveling to China, followed the developments closely. The Treasury on Thursday offered bondholders 10 percent of a newly formed GM's stock, plus warrants to buy 15 percent more to erase the debt. Last week, GM withdrew an offer of 10 percent equity after only 15 percent of the thousands of bondholders signed up.
The current 54 percent acceptance represents only $14.6 billion, but by lining up support in advance of a bankruptcy protection filing, GM is likely to find it easier to persuade a judge to apply terms of the sweetened offer to the rest of its unsecured debt.
It could also help the automaker get through the court process more quickly, said Robert Gordon, head of the corporate restructuring and bankruptcy group at Clark Hill PLC in Detroit.
The company made a huge stride toward restructuring Friday when the United Auto Workers union agreed to a cost-cutting deal.
GM's fate and the federal government's intervention was scrutinized on several Sunday morning talk shows.
"I think the government auto bailout was a big mistake," said Sen. Mitch McConnell, R-Ky., on CNN's "State of the Union" program. "We could have let these companies go through the bankruptcy process much earlier."
In a typical Chapter 11 bankruptcy case, the company files a plan of reorganization that must be voted on by creditors. In each class of creditors, the plan would have to be approved by holders of two-thirds of the claims and a majority of the number of individual creditors who vote.
But the GM case is anything but ordinary, and it appears the company will sell some or all of its assets to a new entity that would become the new GM, rather than submit a plan to reorganize the old company.
GM's stock tumbled to the lowest price in the company's 100-year history on Friday, closing at just 75 cents after trading as low as 74 cents. In a Chapter 11 bankruptcy reorganization, the shares would become virtually worthless.
GM and it's products have meant a lot to all of us, and it's a sad day to see it finally bite the bullet.
However, if the company can be rebuilt stronger, faster, better than it was before, maybe it's for the best.
The shockwaves through the economy are going to hurt, though. A lot.
Banned
Joined: Mar 2004
Posts: 3,577
From: Sandy VJJville
will give taxpayers a 60 percent ownership stake
I like how they say this. What do we get out of it if the company turns around? Will we get a check in the mail? I highly doubt it. Will we end up with nothing if they don't turn around? Of course!
Registered User
Joined: Jan 2000
Posts: 10,285
From: Albany, NY
Well you didn't have to send in a check to buy them, so why would you expect a check in the mail? So much new money has been printed in the last year that even if the Gov't takes a small loss on this it won't be noticeable.
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Joined: Nov 1998
Posts: 3,252
From: Knoxville, TN
http://finance.yahoo.com/news/GM-ban...356.html?.v=34
Wow. Just wow. Two Gov'ts and a union own 90% of GM now.
Never, ever in my adult life did I think I'd see something like this. What has happened to my country.
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.
Never, ever in my adult life did I think I'd see something like this. What has happened to my country.
Banned
Joined: Mar 2004
Posts: 3,577
From: Sandy VJJville
I recall filling out a 1040 that took a sizeable portion of my income and gave it to the federal government.
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Joined: Feb 2005
Posts: 506
From: Columbia, SC
http://finance.yahoo.com/news/GM-ban...356.html?.v=34
Wow. Just wow. Two Gov'ts and a union own 90% of GM now.
Never, ever in my adult life did I think I'd see something like this. What has happened to my country.
Wow. Just wow. Two Gov'ts and a union own 90% of GM now.
Never, ever in my adult life did I think I'd see something like this. What has happened to my country.
my sentiments exactly.
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Joined: Sep 1999
Posts: 602
From: Alpharetta, GA
I agree it is a sad day for GM, but I'm worried about the part where the administration will have a hand in selecting the new board members...I hope the guys/gals they pick have the best interests in GM in mind, and not what the gov't tells them to do, although I'm probably dreaming.
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From: Okemos, MI
Registered User
Joined: Jan 2000
Posts: 10,285
From: Albany, NY
FWIW the rest of the world has much better trains than the USA. We invested all our effort and money into the car and interstate highway system.
Which would have been the same with or without GM going under. I wish more people would complain about SS or the Iraq war, real money pits with no RIO.
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Joined: Jun 2004
Posts: 112
From: Racine, WI
I'm not sure what to say.
GM and it's products have meant a lot to all of us, and it's a sad day to see it finally bite the bullet.
However, if the company can be rebuilt stronger, faster, better than it was before, maybe it's for the best.
The shockwaves through the economy are going to hurt, though. A lot.
GM and it's products have meant a lot to all of us, and it's a sad day to see it finally bite the bullet.
However, if the company can be rebuilt stronger, faster, better than it was before, maybe it's for the best.
The shockwaves through the economy are going to hurt, though. A lot.
