GM files for bankruptcy, to slash over 30,000 jobs
Tuesday, 02 June 2009, 15:23 IST   |    3 Comments
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New York: Storied carmaker General Motors (GM) filed for bankruptcy Monday, becoming the largest-ever US manufacturer to enter the court process and marking the latest dark chapter for the struggling US auto industry. The carmaker goes into an uncertain bankruptcy with the backing of the U.S. government, its chief labour union and the majority of its creditors. But many smaller investors feel they are getting a poor deal and have promised to fight GM's reorganisation plans in court. GM filed the papers electronically in the Southern District of New York's bankruptcy court, setting the stage for an unprecedented government takeover of the largest US car manufacturer in exchange for billions of dollars more in emergency funds. "We are going to do it once and do it right," GM chief executive Fritz Henderson said in a statement. "The court-supervised process we are pursuing provides us with powerful tools to accelerate and complete our reinvention, as well as strong safeguards for our customers and our business." The same New York court Monday paved the way for GM's smaller rival Chrysler to exit bankruptcy, just one month after it sought the court's protection. In a major step, the judge approved the sale of Chrysler's best assets into a new company controlled by Italian carmaker Fiat. The White House has said Chrysler's experience should give GM some hope for its own journey. "Only a month ago, (Chrysler's) very future was in doubt," U.S. President Barack Obama said in a statement. "Now, as a result of a substantial commitment by the US government, and tough sacrifices from all stakeholders involved, Chrysler has a new lease on life." The Obama administration is convinced that GM can exit the court process within two-three months as a smaller, largely debt-free company, according to senior officials who briefed on the plans Sunday night. The White House in a statement said Monday would be another "historic day" for the century-old manufacturer that marks "the end of an old General Motors, and the beginning of a new one". Struck by a deep US recession that has nearly halved its car sales, GM was left no other option as a government-imposed deadline to prove its viability was to expire Monday. GM intends to use the courts to settle about $27 billion in debt owed to creditors and sell its best assets into a new company, leaving behind iconic brands Pontiac, Saturn, Hummer and Saab. The company will also cut ties with one-fifth of its North American dealerships, eliminate more than 30,000 jobs and close 14 production plants. GM's non-US operations are not part of the bankruptcy filing. Its European subsidiaries Vauxhall and Opel are in the process of being sold off to Canadian-Austrian auto parts manufacturer Magna and a Russian partner, with the aid of the German government. The so-called "new" GM will still be effectively nationalised until the company can survive without the government's help. The White House will help replace a majority of the company's board of directors, though senior administration officials insisted they had no interest in running GM's "day-to-day operations". The Obama administration will control about 60 percent of the company in return for another $30 billion in emergency cash. That is on top of $20 billion plugged into the struggling firm since December. Canada's government will contribute another $10 billion and take a 12-percent stake. The company's existing shareholders have been virtually wiped out and GM was pulled from the Dow Jones Industrial Average Monday. Thomas Donohue, president of the US Chamber of Commerce, said he would be watching just how much the US and Canadian governments seek to exercise control over GM's future decisions. "Our biggest concern with the restructuring plan... is the potential for governments and unions to influence production, product, workforce and management decisions in ways that could jeopardise the automakers' chances for survival," Donohue said. GM said Sunday that about 54 percent of its bondholders have already backed the plan, after the U.S. Treasury Department offered the group a sweetened deal. The creditors will start with a 10-percent stake in the "new" GM, but have the option to take up to 15 percent more in future. The United Auto Workers (UAW) union has backed a new labour contract that brings workers' wages and benefits down to the level of foreign manufacturers operating in the United States. A union healthcare trust, owed $20 billion, will also get a 17.5-percent stake in the reorganised firm. GM has named Al Koch, a managing director at the firm AlixPartners LLP, as its chief restructuring officer during the bankruptcy process, the Wall Street Journal reported. Koch oversaw the bankruptcy of KMart Corporation.
Source: IANS
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