GM's bankruptcy official

0 Comments | Oakland Tribune, Jun 1, 2009 | by David Shepardson

DETROIT -- General Motors filed for bankruptcy at 7:57 a.m. Monday in New York, saying it had no other choice because the Obama administration would only provide it with additional funding in bankruptcy.

Now, the 100-year-old automaker begins its historic reorganization to shed billions of dollars in liabilities in part by closing 14 plants and shuttering 2,100 dealers.

"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."

GM disclosed the names of 14 plants it will close by the end of next year -- as it drops from 47 to 33 factories -- including six more in Michigan. GM also is closing service and parts centers in Boston; Columbus, Ohio; and Jacksonville, Fla.

White House press secretary Robert Gibbs said there was no timeline for the government to sell its 60 percent stake in GM. He said the government expects GM to emerge from bankruptcy in 60 to 90 days. "There is an exit strategy," Gibbs said, emphasizing the government will not be running GM.

"In the face of the global meltdown of the financial markets, and a liquidity crisis unprecedented in GM's 100-year history, there is only one way to maximize the value and permit the survival of GM's business and save hundreds of thousands of jobs associated with not only GM, but also its vast supplier and dealer networks: these Chapter 11 cases and the prompt approval of the (sale)," Henderson said in a court filing this morning. "The only other alternative is the liquidation of (GM's) assets."

GM listed $82.3 billion in assets and $172.8 billion in debts and confirmed its naming of a chief restructuring officer. The case was assigned to U.S. Bankruptcy Judge Robert Gerber, with many of its initial legal filings due by June 16. Gerber, a bankruptcy judge since 2000, has overseen big bankruptcies including Global Crossing, Adelphia Communications Corp. and Ames Department stores.

GM asked permission to continue making payroll -- estimated at $110.2 million a month -- along with $34 million in payments to financial and business consultants. GM said it plans to burn through another $5.7 billion in June -- receiving $2.1 billion in revenue and paying out $7.8 billion.

GM's bankruptcy marks the fourth-largest case in U.S. corporate history, and the largest industrial bankruptcy. GM's board of directors approved the filing Sunday in a resolution that was attached to GM's bankruptcy case. GM will remain privately held and under government control for at least six to 18 months, while taxpayers are unlikely to recover at least $20 billion of the money loaned to GM.

Its documents list the company's largest creditors, including a trust company that holds more than $22 billion in bond debt, and the United Auto Workers union, which is owed $20.6 billion. Those debts are for a UAW health care trust fund that is to take over hourly retiree health care next year. Another large union, the IUE-CWA, is owed $2.7 billion. GM said its creditors would meet July 27 -- another sign that GM's stay will be at least 60 days.

Other big debtors include its spinoff supplier Delphi Corp. -- which is owed $110 million -- and other large banks that issued a total of $5 billion in debt. Many other large auto suppliers are among its 50 largest creditors, Delphi announced.

GM said in court filings it would need at least 60 days simply to file a schedule of all its assets and liabilities -- more than the normal 15 days -- an indication of the additional time the case will need.

The filing came hours after a federal bankruptcy judge approved the sale of Chrysler's assets.

Once unthinkable and strongly opposed by GM's executives, the company was forced into filing by the Obama administration, which refused to loan GM more money unless it underwent court restructuring.

"A scenario that would have spelled disaster just six months ago now has a more than decent chance at success, given the Chrysler precedent and unprecedented support being shown by the U.S. government," said IHS Global Insight analyst Aaron Bragman.

Obama officials have noted that Chrysler's vehicle sales didn't collapse after its bankruptcy filing, as many auto executives and congressional officials had warned.

The bankruptcy filing will help GM shrink its dealer network.

Henderson says GM will seek to cut about 2,100 dealerships -- including 400 dealers that sell fewer than 50 cars a year and 630 dealers that substantially sell vehicles from brands that are being discontinued. GM is closing or selling Hummer, Saab, Saturn and Pontiac. The number is far higher than the 1,100 dealers GM said last month it wanted to close by the end of 2010. Now that GM is in bankruptcy court, the automaker can try to immediately terminate dealer franchise agreements, which are protected under state law.