Detroit/Washington: General Motors Corp filed for bankruptcy on Monday, 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 bankruptcy filing is the third-largest in US history and the largest ever in US manufacturing. 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 administration.
But in a sign of progress in the government's high-stakes effort, a bankruptcy judge approved the sale of substantially all of US automaker Chrysler's assets to a group led by Italy's Fiat SpA in an opinion filed late on Sunday.
Chrysler's bankruptcy, also financed by the US Treasury, has been widely seen as a test run for the much bigger and more complex reorganization of GM. The GM plan 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 with U.S. government funding as a White House-appointed task force vetted plans for a sweeping reorganization that will be undertaken with $50 billion in federal financing.
By taking a 60 percent stake in a reorganized GM, the Obama administration is gambling that the automaker can compete with the likes of Toyota after its debt is cut by half and its labor costs are slashed under a new contract with the United Auto Workers union.
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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. 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 and GM bondholders would get 10 percent.
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 George W Bush administration's emergency aid announcement on December 19 and 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.
A veteran restructuring adviser, Koch has had prominent roles in Kmart Corp's restructuring and other turnarounds. Over the weekend, GM won support for the government's plan from investors representing 54 percent of the company's $27 billion in bondholder debt. Bondholders could take up to 25 percent of GM if it recovers to be worth what it was in 2004.
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.
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