General Motors Corp filed for bankruptcy on Monday as the Obama administration took the first steps to try to revive a failed icon of American industry by extending unprecedented federal funding and oversight.
The bankruptcy filing was the third-largest in U.S. history and the largest ever in U.S. 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 U.S. automaker Chrysler's assets to a group led by Italy's Fiat SpA.
In the wake of its widely anticipated bankruptcy filing, GM stock - once considered a rock-solid blue chip - was being removed from the Dow Jones industrial average and delisted by the New York Stock Exchange.
“This is proof that GM has failed,” said automotive historian Bob Elton. “They have been failing for years but have covered it up. Now they've come to the end of the line.”
Chrysler's bankruptcy, also financed by the U.S. Treasury, has been widely seen as a test run for the much bigger and more complex reorganization of GM.
President Barack Obama said on Monday he was confident GM could emerge quickly from bankruptcy, saying the government had been thrust into a reluctant position as controlling shareholder.
“Our goal is to get GM back on its feet, take a hands off approach and get out quickly,” Obama said.
The administration's ambitious plan for GM is for a quick sale process that would allow a much smaller company to emerge from court protection in as little as 60-90 days.
In bankruptcy, GM will be divided in two: a leaner “New GM” and “Old GM” - which will include excess plants and equipment that will eventually be liquidated under court protection.
GM said in a legal filing on Monday that the transaction to create the reorganized company would have to be quick to keep the automaker from losing its best chance to restructure.
“The vicious cycle of frozen credit markets, growing supplier uncertainty and lack of consumer confidence has the potential to unravel the automotive industry and short-circuit the creation of New GM,” Chief Executive Fritz Henderson said in a court filing.
On the first day in bankruptcy court, lawyers for GM said they would ask Judge Robert Gerber to approve its proposed sale of its strongest assets in just 30 days.
GM said Judge Gerber granted approval for it to access a new $33.3 billion debtor-in-possession (DIP) financing facility from the U.S. Treasury and the Canadian and Ontario governments.
The judge authorized the automaker to use up to $15 billion of the facility on an interim basis pending a final order approving the full facility, GM said.
“This credit facility will be used, among other things, for the company's normal liquidity requirements, including employee wages, healthcare benefits, supplier payments, and other operating expenses,” GM said in a statement.
GM also said the court approved sale procedures on an interim basis and set a hearing for June 30 for the proposed sale of assets.
Since the start of the year, GM has been kept alive by 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% stake in a reorganized GM, the Obama administration is betting the automaker can compete with the likes of Toyota Motor after its debt is cut by half and its labor costs are slashed.
GM plans to close or idle 14 U.S. plants and warehouse operations. The closings, which hit facilities from Michigan to Massachusetts, will cut between 18,000 and 20,000 GM workers in the United States.
In addition, GM said it would cut almost 8,000 white-collar jobs, with cuts among its senior executives.
GM had faced criticism under former CEO Rick Wagoner for not moving fast enough to overhaul a line-up tipped heavily toward pickup trucks and SUVs. Wagoner was ousted by the Obama administration at the end of March.
“The GM that many of you knew, the GM that let too many of you down, is history,” said Henderson at a news conference in New York.
“Today marks the beginning of what will be a new company, a new GM dedicated to building the very best cars and trucks, highly fuel-efficient, world-class quality, green technology development,” he said.
The United Auto Workers union would have a 17.5% stake in the New GM. The Canadian government would own 12%. GM bondholders would receive 10%.
Kent Kresa, who became GM chairman at the end of March, said he was already interviewing candidates to be directors for the new board at GM and was in contact with Steve Rattner, who heads the White House's autos task force, as part of that process.
KEEP IT OUT OF LIQUIDATION
Officials involved in the planning for GM said the White House had to act 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.
Officials said there was no plan to provide any further funding for GM and insisted all the Detroit Three could survive. Ford Motor Co has not sought emergency federal aid.
In the case of GM, the goal of restructuring is to allow it to return to break-even if U.S. industry wide auto sales recover even slightly to near 10 million units annually. Until now, to stop losing money, GM had counted on a recovery to the 16 million mark the industry last saw in 2007.
The automaker's final descent started with an emergency aid announcement by the administration of President George W. Bush on December 19. Then in late March, the Obama administration gave the company 60 days to restructure.
While 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.
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 the automaker would deliver “a car for every purse and purpose.”
By the mid-1950s, at the peak of its success, GM had 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.
Since the 1960s, GM has struggled to come to grips with the gains by overseas rivals led by Toyota and the popularity of their more fuel-efficient small cars.
A relative upstart, Toyota did not even begin making cars until two years after GM had become the global sales leader in 1931. In a changing of the guard, Toyota eclipsed GM as the top automaker by worldwide vehicle sales last year.
GM has operated a joint-venture plant with Toyota since 1983 in California. GM executives said on Monday the automaker was reviewing its continued participation in the plant.
The Fremont, California-based NUMMI plant makes Tacoma pickups and Corolla sedans for Toyota. For GM, the plant makes the Pontiac Vibe. GM is dropping Pontiac along with its Hummer, Saturn and Saab brands.
In Shanghai, Kevin Wale, president of GM China Group, said an announcement on the sale of Hummer was imminent.
GM's stock fell to a low of 48 cents on Monday, a level last seen during the Great Depression. (Reuters)