NEW YORK: General Motors filed for bankruptcy protection yesterday 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 US 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 statement. “Today marks a new beginning for General Motors ... The board is confident that this New GM can operate successfully in the intensely competitive US market and around the world.”
Under Chapter 11 reorganization, a company can stay in operation under court protection while shedding debts and unprofitable assets to emerge in a stronger financial position.
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 is on top of about $20 billion in taxpayer money GM already has received in the form of low-interest loans.
“Our agreement with the US Treasury and the governments of Canada and Ontario will create a leaner, quicker more customer and completely product-focused company, one that’s more cost competitive and has a competitive balance sheet,” CEO Fritz Henderson said at a news conference in New York. “This new GM will be built from the strongest parts of our business, including our best brands and products.”
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 said the actions were part of a “viable, achievable plan that will give this iconic company a chance to rise again.” He said the government would refrain from playing a management role in all but the most critical areas. “Our goal is to help GM get back on its feet ... and get out quickly,” he said of the federal government.
Obama pointed to the bankruptcy process currently taking place for another US auto firm, Chrysler, which could be reborn as a new company within days. “Chrysler’s extraordinary success reaffirms my confidence GM will emerge from its bankruptcy process quickly,” Obama said. He justified his decision to rescue firms like Chrysler and GM, saying allowing them to fail would have triggered deep economic and social dislocation.
GM said it expects 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 it will permanently close nine more plants and idle three others. The Pontiac, Michigan, and Wilmington, Delaware, assembly plants will close this year, while plants in Spring Hill, Tennessee, and Orion, Michigan, 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.