General Motors Renaissance Center, Detroit, MichiganEnlarge Photo
General Motors filed Chapter 11 bankruptcy on Monday morning in a New York court, after a four-year slide in sales and profits that burned $33.6 billion and led to a government-backed loan that has kept the company in business to date.
The epic bankruptcy filing--the fourth largest in U.S. history-- comes after GM worked in recent weeks to find partners for its Opel/Vauxhall operations, to convince a majority of bondholders to accept diminished returns on their investments and to reach a deal with the United Auto Workers (UAW) on new work, pay and retirement benefits.
The GM filing follows on the heels of the Chrysler bankruptcy filing last month. Chrysler could emerge from a rapid bankruptcy proceeding today as a unit of Italy's Fiat Group, as a federal judge has sanctioned the sale of Chrysler assets to the European automaker. GM's bankruptcy will follow a similar path, and though it will be more complex due to GM's size, the pattern could allow GM to execute one of the fastest, largest bankruptcies in recent U.S. history.
President Barack Obama said in a noon press conference that GM and stakeholders have come up with a "viable, achievable plan give this iconic company a chance," while also criticizing the company for piling up "unsustainable" levels of debt. This is the company's last chance at salvation, he hinted: "I refuse to let these companies become wards of the state," the President said.
Meanwhile, conservatives like Minnesota governor Tim Pawlenty continued to voice opposition to the bailouts and loans that have ended up with taxpayers owning a majority stake in GM and Chrysler. Pawlenty, in a televised interview, said the recent auto and bank bailouts put America's economy on a path to disaster "in 10 or 15 years."
Others doubt the ability of the companies to re-engineer themselves under government control. Thomas J. Donohue, president and CEO of the U.S. Chamber of Commerce: "If members of Congress, along with government officials from the United States to Germany to Canada, are allowed undue influence over management’s decisions, then you can write this down: These companies will not return to profitability and their survival will be seriously challenged."
For most of the year, General Motors has been furiously cutting costs, striking deals with the government for loans, with the union for cost cuts in wages and benefits and retirement commitments, and finding partners or buyers for its HUMMER, Saturn, Saab and Opel/Vauxhall brands. The titanic effort has seen real progress, but in the end GM sought Chapter 11 protection so it could turn massive debts of more than $60 billion into a more manageable debt load.