GM hopes for fast exit from bankruptcy protection
NEW YORK -- General Motors hopes to follow the lead of fellow U.S. automaker Chrysler by transforming its most profitable assets into a new company in just 30 days and emerging from bankruptcy protection soon after.
But Detroit-based General Motors Corp. is much larger and complex than its Auburn Hills, Michigan-based rival and is not up against Chrysler LLC's tight June 15 deadline with Fiat.
Sharon Lindstrom, managing director at business consulting firm Protiviti, said the companies pose different challenges. But as with Chrysler, she notes that the Treasury Department made sure many of GM's moving parts were in order ahead of time so a quick bankruptcy reorganization might be possible.
"They had a lot of their ducks in a row because the terms of the government financing forced them to get all the parties to the table in a very, very short period of time," Lindstrom said.
GM nailed down deals with the United Auto Workers union and a majority of its bondholders and arranged to sell off most of its Opel operations in Europe in order to appear in court Monday with a near-complete plan to quickly emerge with a chance to become profitable.
"Our agreement with the U.S. 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 government has said it expects GM to come out of bankruptcy protection within 60 to 90 days. By comparison, the judge overseeing Chrysler's case approved the sale of its assets to a group led by Italy's Fiat Group SpA in just over a month. Some industry observers think Chrysler could emerge as early as this week.
During Monday's bankruptcy court hearing, GM Attorney Harvey Miller stressed the magnitude of the case and the importance of moving GM through court oversight as fast as possible. He noted that the automaker only has about $2 billion in cash left.
"If there's going to be a recovery of value, it's absolutely crucial that a sale take place as soon as possible," Miller said in his opening statement.
The automaker wants to sell the bulk of its assets to a new company in which the U.S. government will take a 60 percent ownership stake. The Canadian government would take 12.5 percent of the "New GM," with the United Auto Workers getting 17.5 percent 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."
The president 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.
Attorneys for GM stakeholders packed the stuffy courtroom well ahead of the automaker's first-day Chapter 11 bankruptcy protection hearing. U.S. Judge Robert Gerber moved swiftly through the agenda's more than 25 mostly procedural motions.
Gerber set GM's sale hearing for June 30, putting it on a path similar to that of Chrysler. Objections are due on June 19, with any competing bids required to be submitted by June 22.
Gerber also gave GM immediate access to $15 billion in government financing to get it through the next few weeks, and interim approval for use of a total $33.3 billion in financing, with final approval slated to be ruled on June 25. The funds are contingent on GM's sale being approved by July 10. Gerber also approved motions allowing the company to pay certain prebankruptcy wages, along with supplier and shipping costs.
GM first sought help from the Bush administration and Congress last year as it was in the midst of being staggered by $30.9 billion in losses and seeing its cash resources shrink by more than $19 billion.
The sheer size of GM makes it a more complicated case than Chrysler.
GM made twice as many vehicles as Chrysler's 1.5 million last year and employs 235,000 people compared with Chrysler's 54,000. GM also has plants and operations in many more countries, meaning it will likely have to strike separate deals to navigate the bankruptcy laws of those places.
The company is moving forward with just four core brands -- Chevrolet, Cadillac, Buick and GMC. GM China Group President Kevin Wale said late Monday an announcement on the sale of the iconic Hummer brand is expected "imminently." Plans for its Saturn brand are expected within weeks.
GM said Monday that it will permanently close nine more plants and idle three others. The company plans to cut 21,000 employees, about 34 percent of its work force, and reduce its 6,100 dealers by 2,600.
The Detroit automaker said warranty coverage, service and customer support will continue uninterrupted, plants will continue to make cars and trucks, and essential suppliers and GM's employees worldwide will continue to be paid. GMAC Financial Services said in a statement that it will continues to provide automotive financing to GM and Chrysler dealers and customers, and the federal Pension Benefit Guaranty Corp. said workers' pension plans remain safe.
GM's Monday filing for Chapter 11 bankruptcy protection is the largest ever for an industrial company. GM, which said it has $172.81 billion in debt and $82.29 billion in assets, had received about $20 billion in low-interest loans before entering bankruptcy protection.
Chapter 11 of the U.S. Bankruptcy Code frees a company from the threat of creditors' lawsuits while it reorganizes its finances. The debtor's reorganization plan must be accepted by a majority of its creditors.
The third of the one-time Big Three, Ford Motor Co., has also been stung hard by plunging sales of cars and trucks, but it avoided bankruptcy by mortgaging all of its assets in 2006 to borrow roughly $25 billion, giving it a financial cushion GM and Chrysler lacked.
Ford issued a statement Monday saying it "remains absolutely committed to continuing to make progress on our transformation plan without accessing emergency taxpayer assistance from the U.S. government."
The bankruptcy filing represents a dramatic downfall for GM, which was founded in 1908 by William C. Durant, who brought several car companies under one roof and developed a strategy of "a car for every purse and purpose." Longtime leader Alfred P. Sloan built the global automaker into a corporate icon.
AP Auto Writer Dan Strumpf in New York and Associated Press writer Joe McDonald in Beijing contributed to this report.