General Motors (GM) won approval from a bankruptcy judge late on Sunday to sell its best assets to a new automaker in which the US government will hold a majority stake.
The decision paves the way for a speedy exit for GM, which sought bankruptcy protection on June 1 and has vowed to reinvent itself as a leaner, more profitable company once freed from its burdensome debts.
Once the world’s largest corporation, the new GM will emerge as a significantly smaller automaker with fewer brands, tens of thousands less employees, and a diminished global footprint.
Judge Robert Gerber said he had examined about 850 objections to the restructuring plan raised by GM bondholders and others, but found there were “no realistic alternatives” to the asset sale.
“As nobody can seriously dispute, the only alternative to an immediate sale is liquidation — a disastrous result for GM’s creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates,” Gerber wrote in a 95-page opinion. “Bankruptcy courts have the power to authorize sales of assets at a time when there still is value to preserve-to prevent the death of the patient on the operating table.”
Judge Gerber’s decision can still be appealed by GM’s creditors and it will take several days or possibly a few weeks for the asset sale to be completed.
That will nonetheless be well ahead of the 60 to 90 day timeframe predicted by US President Barack Obama’s administration, which spearheaded the process and warned that it would withdraw funding if the sale was not approved by Friday. Chrysler, which is about a third of the size, spent 42 days in bankruptcy protection and even an appeal to the Supreme Court did not block its sale to a new company run by Italy’s Fiat.
Like Chrysler, GM’s weaker assets will be liquidated through the New York bankruptcy court, but the new GM will not be burdened by the lengthy process.
The cost of liquidating GM’s remaining assets could be as high as US$1.2 billion, chief executive officer Fritz Henderson testified last Tuesday.
The US government will own 60.8 percent of the new company after having supported GM’s operations with some US$50 billion in emergency loans. Canada, which provided US$9.1 billion in loans, will have an 11.7 percent stake and a United Auto Workers union retiree health care trust fund will hold 17.5 percent.
The “Old GM” will retain a 10 percent stake, allowing creditors to recover some of their losses.
Obama has said his administration has no intention of nationalizing GM over the long term and will not be participating in its day-to-day operations.
A senior member of Obama’s automotive task force testified last week that the government could begin to sell its stake as early as next year, once the new company is ready to launch a public stock offering. GM was able to move through the process swiftly because it spent months preparing for the bankruptcy process and reaching agreements with its main union and most of its creditors.
While the new GM will have a significantly stronger balance sheet after having slashed its labor costs and shuttered factories to rid itself of excess capacity, it must still contend with the collapse in auto sales that pushed it into court protection. US auto sales appear to have stabilized after falling to levels not seen in decades, but analysts warn it will likely be months before they recover from the current depressed rate. Total US auto sales fell 28 percent last month, the first time sales have fallen by less than 30 percent since the market crashed in October last year, Autodata said.