General Motors Co (GM) filed for bankruptcy yesterday, forcing the 100-year-old automaker once seen as a symbol of US economic might and dynamism into a new and uncertain era of government ownership.
The bankruptcy filing is the third-largest in US history and the largest ever in US manufacturing.
The decision to push GM into a fast-track bankruptcy and provide US$30 billion of additional taxpayer funds to restructure the automaker, is a huge gamble for US President Barack Obama’s administration.
But in a sign of progress in the government’s high-stakes effort, a bankruptcy judge approved the sale of substantially all of US automaker Chrysler’s assets to a group led by Italy’s Fiat SpA 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 reorganization of GM.
The GM plan 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,” he said.
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 reorganization that would be undertaken with US$50 billion in federal financing.
By taking a 60 percent stake in a reorganized GM, the Obama administration is gambling that the automaker can compete with the likes of Toyota after its debt is cut by half and its labor costs are slashed under a new contract with the United Auto Workers (UAW) union.
The governments of Canada and the province of Ontario agreed to provide another US$9.5 billion to GM in a late addition to the plans for the bankruptcy.
GM intends to close 11 facilities in the US 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 US.
The UAW would have a 17.5 percent stake in the “new GM.” The Canadian government would own 12 percent and GM bondholders would get 10 percent.
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 US and is indirectly responsible for 500,000 retirees.
“We want a quick, clean exit [from bankruptcy] 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.”
Obama was scheduled to speak on the auto industry shortly before noon yesterday. A news conference by GM chief executive Fritz Henderson is to follow.
US officials said there was no plan to provide any further funding for GM and insisted that all of the Detroit Three could survive. Ford Motor Co has not sought emergency federal aid.
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