GM bankruptcy filing planned for Monday June 1st 2009 in New York
* U.S. government would own 60 percent of "new GM"
* Judge clears sale of Chrysler assets to Fiat-led group
* Obama to speak on auto industry on Monday
(For Reuters coverage on autos, click [ID:nCARS1])
By Kevin Krolicki and John Crawley
DETROIT/WASHINGTON, June 1 (Reuters) - General Motors Corp
(GM.N) will file for bankruptcy later on Monday, U.S. officials said, forcing the 100-year-old automaker once seen as a symbol of American economic might and dynamism into a new and uncertain era of government ownership.The planned filing, confirmed by Obama administration officials, would be the third-largest in U.S. history and the largest-ever U.S. manufacturing bankruptcy. The decision to push GM into a fast-track bankruptcy, and provide $30 billion of additional taxpayer funds to restructure the automaker is a huge gamble for the Obama presidency.But in a sign of progress in the government's high-stakes effort, a bankruptcy judge approved the sale of substantially all of U.S. automaker Chrysler's assets to a group led by Italy's Fiat SpA(FIA.MI) in an opinion filed late on Sunday.Chrysler's bankruptcy, also financed by the U.S. Treasury, has been widely seen as a test run for the much bigger and more complex reorganization of GM. The GM plan as detailed by U.S. officials is for a quick sale process that would allow a much smaller GM to emerge from court protection in as little as 60 to 90 days. "Now the hard part begins, which is making GM and Chrysler competitive. If they don't do that, then we'll be doing this all over again in a few years," said Christopher Richter, auto analyst at CLSA Asia-Pacific Markets in Tokyo. "The immediate implication is that the companies are going to get smaller and so market share is up for grabs, which means that rivals like Toyota , Honda , Nissan and Hyundai are going to gain share."
Since the start of the year, GM has been kept alive withU.S. government funding as a White House-appointed task force vetted plans for a sweeping reorganization that will be undertaken with $50 billion in government financing.
By preparing to take a 60 percent stake in a reorganized GM, the Obama administration is gambling that the automaker can compete with the likes of Toyota Motor Corp after its debt is cut by half and its labor costs are slashed under a new contract with the United Auto Workers union. The governments of Canada and the province of Ontario agreed to provide another $9.5 billion to GM in a late addition to the plans for the bankruptcy that have been taking shape for weeks, U.S. officials said. [ID:nN31418487] GM plans to close 11 U.S. facilities and idle another three plants. It has not provided an updated target for job cuts but had been looking to cut 21,000 factory jobs from the 54,000 UAW workers it now employs in the United States. The UAW would have a 17.5 percent stake in the "new GM." The Canadian government would own 12 percent stake and GM bondholders would get 10 percent.
Officials involved in the planning for GM said the White House was a "reluctant investor" in GM but had to prevent a
liquidation that analysts say would have cost tens of thousands of jobs at a time when the economy is mired in recession. GM alone employs 92,000 in the United States and is indirectly responsible for 500,000 retirees.
"We want a quick, clean exit as soon as conditions permit," Treasury Secretary Timothy Geithner told students at Peking University in Beijing. "We're very optimistic these firms will emerge without further government assistance."
Analysts said that while there were large risks to the Obama administration's approach, it had at least succeeded in pulling GM back from the brink of collapse. [ID:nN31400726] "I think they have a much greater chance of emerging as a
healthy company now than they did just six months ago," said Aaron Bragman, an analyst at IHS Global Insight. "Nobody gave them any possibility of emerging as a whole company." President Barack Obama is due to speak on the auto industry shortly before noon Eastern time on Monday. A news conference by GM Chief Executive Fritz Henderson will follow. U.S. officials said there was no plan to provide any further funding for GM and insisted that all of the Detroit Three could survive. Ford Motor Co (F.N) has not sought emergency federal aid. "We do believe, and completely endemic in the president's decision, was a belief that this country can support three domestic successful viable auto companies," a senior Obama administration official said. In the case of GM, the goal of restructuring is to allow it to return to profitability if U.S. industry-wide auto sales recover even slightly to near 10 million on an annual basis. Until now, GM had counted on a recovery to the 16-million-unit mark the industry last saw in 2007 in order to stop losing money, officials said. Even if GM and Chrysler emerge swiftly from bankruptcy this summer, the autos task force will stay in business -- shifting to an investment management role.
Senior administration officials said on Sunday there was plenty to keep the task force staff busy, monitoring the
government's stake of about 60 percent of GM, and less than a 10 percent stake in Chrysler. [ID:nN31418995]
The task force is led by Wall Street investment banker Steven Rattner and labor negotiator Ron Bloom, and includes top White House adviser Lawrence Summers and U.S. Treasury Secretary Timothy Geithner.
CAREFULLY ORCHESTRATED FAILURE
GM's bankruptcy is the most carefully orchestrated Chapter 11 filing in the history of American business.
The automaker's final descent started with President GeorgeW. Bush administration's emergency aid announcement on Dec. 19and accelerated in late March when the new Obama government gave it 60 days to restructure. While the "new GM" is expected to emerge quickly from court protection, its shuttered plants, stranded equipment and other spurned assets would be left to liquidation in bankruptcy. Al Koch, a managing director at advisory firm AlixPartners LLP, will be appointed chief restructuring officer in charge of liquidating those GM assets. [ID:nN31395352] A veteran restructuring adviser, Koch has had prominent
roles in Kmart Corp's restructuring and other turnarounds. Over the weekend, GM won support from investors
representing 54 percent of its $27 billion in bondholder debt offered their support for the U.S. government's plans.
[ID:nN31329833] Bondholders could take up to 25 percent of GM if it recovers to be worth what it was in 2004.
The bondholders' support does not ensure court approval but gives the company an important symbolic victory that bankruptcy experts and analysts say will help GM's case. In the past week, GM has also concluded an amended
agreement with the United Auto Workers union under which the UAW will receive a 17.5 percent in a restructured company and other debt and preferred stock instead of $20 billion in cash. Founded in 1908, GM rose to dominate the U.S. and global auto industries under the stewardship of pioneering chief executive Alfred Sloan, who famously pledged that the automaker would deliver "a car for every purse and purpose." By the mid-1950s, at the peak of its success, GM had some 514,000 employees. It accounted for about half of U.S. car production and its sales were twice as large as the No. 2 corporation, Standard Oil. GM's stock fell to 75 cents on Friday, a level last seen during the Great Depression on what was expected to be its last trading day before bankruptcy. (Additional reporting by David Bailey, Soyoung Kim, David
Lawder, John Crawley, Walden Siew and Tom Hals; Editing by
Patrick Fitzgibbons and Ted Kerr)
MARCH 31st 2009: President Obama is giving General Motors 60 days to come up with a more aggressive plan to cut costs and debt. Chrysler is only getting half that time to work out a combination with Italian automaker Fiat. If they fail, the government will force them into bankruptcy court. On Tuesday, new GM (GM, Fortune 500) CEO Fritz Henderson said the company might be in bankruptcy even quicker than that if negotiations with creditors and the United Auto Workers union don't go well. Chrysler has estimated it will need $24 billion in federal help over 24 to 30 months to accomplish an orderly shut-down of its operations, in order to limit the shock to the rest of the industry. But those loans would be only part of the cost to taxpayers of a Chrysler bankruptcy. There would also be an estimated $110 billion in lost tax revenue over the next three years. And it seems safe to say that a bankruptcy could drag out the current recession.
The resignation of General Motors chairman and CEO Rick Wagoner had to happen & it did. GM lost more than $80 billion over the last four years and is dependent on handouts from the federal government for survival on a day-to-day basis. CM will not saurvive as we have said in its present capacity as a car manufacturer.
MARCH 7th 2009: GM has large and continuing losses of $82 billion over the last four years and this will continue because of the UAW Union.
Obama must now decide under the terms of the $13.4 billion in federal loans GM has already receivedthat the company's plans make it viable in the long run. GM received $13.4 billion so far, and it has asked for up to $16.6 billion more. Plus it wants $7.7 billion in loans to convert production from light trucks to more fuel efficient cars under an Energy Department loan program and aid from foreign governments for some of its non-U.S. operations. GM stocks have now crashed to well beloe the $2 mark as investors stay away from it.
Nationalization of GM and Chrysler may be the best fix facing the industry and federal policymakers as they throw more bad money into GM and others.
WHY THE UNION UAW MUST GO:
The Union has crippled GM. without the UAW, GM would have produced more reliable, higher quality cars, had a better reputation for quality, and greater sales volume. GM would have been free to produce in the most-efficient, lowest cost way and to introduce improvements in efficiency as rapidly as possible. Sometimes this would have meant simply having one or two workers on the spot do a variety of simple jobs that needed doing, without having to call in half a dozen different workers each belonging to a different union job classification and having to pay that much more to get the job done. At other times, it would have meant just going ahead and introducing an advance, such as the use of robots, without protracted negotiations with the UAW resulting in the need to create phony jobs for workers to do (and to be paid for doing) that were simply not necessary.
At its assembly plant in Oklahoma City, GM is actually obliged by its UAW contract to pay 2,300 workers full salary and benefits for doing absolutely nothing.Since G.M. shut down production there last month, these workers have entered the Jobs Bank, industry's best form of job insurance. It pays idled workers a full salary and benefits even when there is no work for them to do.")
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BANKRUPTCY UNDER CHAPTERS 7 & 11
Chapter 11 of the Bankruptcy Code means to "reorganize" the company and try to become profitable. Management continues to run the day-to-day business operations but business decisions must be approved by a bankruptcy court.
Under Chapter 7, the company stops all operations and goes completely out of business. A trustee is appointed to "liquidate" (sell) the company's assets and the money is used to pay off the debt, which may include debts to creditors and investors.
The investors who take the least risk are paid first. eg secured creditors take less risk because the credit that they extend is usually backed by collateral, like a mortgage or other company assets. They know they will get paid first if the company declares bankruptcy.
Bondholders have a greater potential for recovering their losses than stockholders, because bonds represent the debt of the company and the company has agreed to pay bondholders interest and to return their principal. Stockholders own the company, and take greater risk. They could make more money if the company does well, but they could lose money if the company does poorly. The owners are last in line to be repaid if the company fails. Bankruptcy laws determine the order of payment.