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."
GM Chapter 11: The Fallout
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.
In conjunction with today's filing, GM has announced the closure or idling of an additional 14 assembly and parts facilities across North America as it rapidly reconfigures its manufacturing capacity to match the new focus on four brands: Chevrolet, Cadillac, Buick and GMC. Some 21,000 jobs will be cut as a result, about a third of GM's current workforce.
The plants being closed or idled include GM's Orion, Mich., plant and Spring Hill, Tenn., plant, which will be put on standby until GM either reassigns product to them or brokers a deal to sell them. Spring Hill could be packaged with the Saturn brand, for example, while the Orion plant could be closed eventually after the next-generation Chevrolet Malibu bows. The Malibu is built in Orion, where GM also built the Pontiac G6; production could move to Fairfax, Kan., where GM will also build the 2010 Buick LaCrosse. GM's plan refers to an additional plant closure in 2012, which would coordinate with a replacement for the Malibu, which was new in 2008.
To date, there is no decision on the future of the HUMMER/Colorado plant in Sheveport, La. It is expected that production of the Chevrolet Traverse will move to Delta Township, Mich., from Spring Hill, Tenn.
GM Chapter 11: The Union's Take
The additional UAW job cuts that will come at General Motors are the result of cooperation with the company and the government, says UAW president Ron Gettelfinger"We've done everything we possibly could," he noted on a televised interview, and pointed a finger at critics who claim the bankruptcies of GM and Chrysler are largely due to union demands.
"Are the people that are pointing fingers at the UAW also giving us credit for what's going on at the Ford Motor Company?" Gettelfinger asked.
Gettelfinger expects UAW blue-collar employment levels to settle out at around 38,000-40,000 workers at GM; at Chrysler, less than 20,000 UAW workers will have jobs after restructuring. Gettelfinger noted the uncertainty in the union's trade of pension dollars it's owed for GM stock: "There are a lot of retirees out there who are wholly dependent on the VEBA surviving," he noted.
Gettelfinger also indicated the UAW's new stake in Chrysler could be sold to Fiat in the future.
These sacrifices by organized labor won't be the last. President Obama said in a press conference that today's auto workers are "making a sacrifice for the next generation...so your children and all our children can grow up in an America that still makes things."
GM Chapter 11: What's Next
The restructuring will leave General Motors largely in the hands of the U.S. government and taxpayers; their 60-percent stake in the company will be flanked by the UAW's 17-percent stake; bondholders will get roughly 10 percent in the new company, with warrants to purchase another 10 percent. The government will supply GM with an additional $30 billion to complete the restructuring.
GM also is expected to name the winning bid in its auction for the HUMMER brand today in an afternoon press conference held by CEO Fritz Henderson.
As a result of the dealings, GM is expected to emerge from bankruptcy court shorn of its "bad" assets and reconstituted as a smaller company with four brands and $17 billion in debt, plus an additional $9 billion in financial commitments. Analysts estimate it could be years before GM emerges from that new foundation as an independent company.
The "new" GM will be profitable if it maintains its share of a U.S. new-vehicle market of 10 million sales annually--levels which could be reached in June or July, as sales begin to strengthen a bit.
Fritz Henderson, GM president and CEO, says this will be the company's one chance at survival. “We are going to do it once and do it right,” he said in a press conference while confirming that new products like the 2011 Chevrolet Cruze, 2011 Chevrolet Volt and 2011 Chevrolet Spark still on track. GM also has launched GMReinvention.com, a new Web site to keep consumers updated on the company's massive restructuring.
The basics of Chapter 11 court proceedings are just the beginning. The first GM bankruptcy hearing 4 p.m. today in NYC, with Judge Robert Gerber presiding; the quick hearing keeps payroll, warranties and incentives rolling. GM has a deadline of July 10 to finalize restructuring under plan--dealer shutdowns and plant closings included. In the meantime, GM will be delisted from the Dow Jones Industrial Average along with Citigroup, to be replaced by Cisco and Travelers.No one involved in the massive restructuring will guarantee the outcome--and even Henderson admits every automotive turnaround requires products and finance to work. GM's chances of pulling both of those efforts off is dicey, says Al Ingrisani. The former assistant Labor secretary says the chances for successful GM reorganization while changing product lines are "zero to near zero...the only factor in their favor is unlimited checkbook from the government, until the political will runs out."
More GM Chapter 11 Coverage
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