Once the world's largest car maker and a 100-year-old symbol of American industrial might, General Motors has crashed under the pressure of debt and decreased demand.
GM to file for bankruptcy
DETROIT/WASHINGTON // General Motors will file for bankruptcy later today, US officials said, forcing the 100-year-old car maker once seen as a symbol of American economic might and dynamism into a new and uncertain era of government ownership. The planned filing, confirmed by Obama administration officials, would be the third-largest in US history and the largest-ever US manufacturing bankruptcy.
The decision to push GM into a fast-track bankruptcy, and provide US$30 billion (Dh110.2bn) of additional taxpayer funds to restructure the car maker is a huge gamble for the Obama presidency. But in a sign of progress in the government's high-stakes effort, a bankruptcy judge approved the sale of substantially all of US car maker Chrysler's assets to a group led by Italy's Fiat 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 reorganisation of GM. The GM plan as detailed by US officials 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 US government funding as a White House-appointed task force vetted plans for a sweeping reorganisation that will be undertaken with $50bn in government financing. By preparing to take a 60 per cent stake in a reorganised GM, the Obama administration is gambling that the car maker can compete with the likes of Toyota Motor Corp after its debt is cut by half and its labour costs are slashed under a new contract with the United Auto Workers union.
The governments of Canada and the province of Ontario agreed to provide another US$9.5 bn to GM in a late addition to the plans for the bankruptcy that have been taking shape for weeks, US officials said. GM plans to close 11 US 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 per cent stake in the "new GM." The Canadian government would own 12 per cent stake and GM bondholders would get 10 per cent. Officials involved in the planning for GM said the White House was a "reluctant investor" in GM but had to prevent a liquidation that analysts say would have cost tens of thousands of jobs at a time when the economy is mired in recession. GM alone employs 92,000 in the United States and is indirectly responsible for 500,000 retirees. "We want a quick, clean exit as soon as conditions permit,"
Treasury Secretary Timothy Geithner told students at Peking University in Beijing. "We're very optimistic these firms will emerge without further government assistance." Analysts said that while there were large risks to the Obama administration's approach, it had at least succeeded in pulling GM back from the brink of collapse. "I think they have a much greater chance of emerging as a healthy company now than they did just six months ago," said Aaron Bragman, an analyst at IHS Global Insight. "Nobody gave them any possibility of emerging as a whole company."
President Barack Obama is due to speak on the auto industry shortly before noon Eastern time on Monday. A news conference by GM Chief Executive Fritz Henderson will follow. * Reuters