An icon collapses as GM declares bankruptcy Monday
Posted by thinker on 01/06/2009
AFP – Monday, June 1
WASHINGTON (AFP) – – General Motors will declare bankruptcy Monday, marking the end of an era of American manufacturing dominance as what was once the world’s largest corporation collapses under the weight of its mistakes and debts.
Senior US officials detailed Sunday what they hope will be a swift process in which GM should be able to reemerge from bankruptcy protection as a new, leaner company within 60 to 90 days.
General Motors will enter the courtroom with billions in government financing and agreements already in place to cut labor costs, swap much of its debt for equity and reduce its liabilities by 50 percent.
Officials said the process is expected to be similar to that of Chrysler, which is expected to emerge from bankruptcy protection this week after just over a month.
However, the process will not be “as speedy as Chrysler because GM is a far larger, far more complicated global company,” senior administration officials cautioned.
President Barack Obama is to hold a press conference at 11:55 am (1555 GMT) Monday to discuss the state of the automotive industry.
Newly appointed GM chief executive officer Fritz Henderson, who is expected to continue to steer the new company, will speak to the media shortly afterwards.
“It’ll have a huge impact in the United States because it’s more than just a corporation — it’s an icon,” said Gary Chaison, a professor of labor relations at Clark University.
“It represented manufacturing supremacy and good jobs for American workers. That’s gone.”
GM has already begun a major restructuring of its operations that will “allow the company to move toward profitability even if the auto market recovers slowly,” senior administration officials said.
The largest US automaker will close 11 plants and idle three others as it slashes its operating costs in order to lower its breakeven point by 40 percent in terms of overall US industry sales.
The US government will provide an additional 30.1 billion dollars in financing to help GM restructure under court protection and will receive a 60 percent stake in the new company. It has already provided 19.4 billion dollars in loans.
Officials cautioned that the Obama administration has no intention of nationalizing General Motors and will not be participating in its day-to-day operations.
“The government has no desire to own equity stakes in companies any longer than necessary, and will actively seek to dispose of its ownership as soon as practicable,” senior administration officials said in a media briefing.
“The goal is to promote strong viable companies that can become profitable quickly and contribute to economic growth and jobs without government involvement.”
The governments of Canada and Ontario, which have several GM factories, will provide an additional 9.5 billion dollars in financing and receive a 12 percent stake.
Creditors holding about 54 percent of General’s Motors bonds agreed to a plan that would swap 27.1 billion dollars in debt for a 10 percent stake and warrants for an additional 15 percent stake, officials said.
Bondholders who rejected the plan could still fight it in court, but the government maintains they could end up with little or nothing if they take that path.
A retiree health care trust will receive a 17.5 percent stake in the new GM and 6.5 billion dollars in preferred stock in exchange for forgiving much of a 20-billion-dollar obligation.
Employees will continue to be paid and GM will immediately seek permission to continue to pay suppliers and honor customer warranties.
GM will also offer about 40 percent of its dealers 18 months to wind down their operations and will immediately seek permission to honor incentives offered to its remaining dealers.
On Monday, New York bankruptcy judge Arthur Gonzales was set to rule on number three US automaker Chrysler, which filed for bankruptcy protection on April 30.
Under an expedited process, Gonzales was expected to approve the creation of a new Chrysler that would preserve the automaker’s healthiest assets and liquidate the rest.
The new entity will be controlled by a consortium consisting of the Italian automaker Fiat, the United Auto Workers union’s retiree health care trust fund, and the US and Canadian governments.
Fiat will have a 20 percent stake with the option to increase it to 35 percent; the UAW 55 percent; and the US and Canadian governments 10 percent.