General Motors Corp., long the symbol of American might and lately a stark reminder of the nation’s failings, will file the largest industrial bankruptcy in U.S. history today, according to senior Obama administration officials.
The move, part of a government-led restructuring, ends months of anxiety and uncertainty about the legendary automaker, which only a decade ago was the world’s largest company. GM will formally succumb to years of missteps, changing consumer tastes and a historic collapse of global auto sales, and will leave the government with a 60% stake in the company.
To keep GM afloat, the Obama administration will add $30.1 billion in taxpayer funds to the $20 billion already provided. That will make GM the second-largest recipient of bailout money, behind insurance giant American International Group.
GM will join Chrysler as the bankrupt duo of Detroit’s once-formidable Big Three.
Chrysler, which filed April 30, received court approval late Sunday to transfer most of its assets to a new entity run by Italian automaker Fiat, paving the way for the company to emerge from bankruptcy as soon as this week.
The Obama administration is touting the GM filing as a painful but necessary court-supervised restructuring that will make the company profitable again and a leader in producing fuel-efficient vehicles. The only other option, the government has said, would be a liquidation that could put tens of thousands out of work throughout the industry and deal a severe blow to the economy. Los Angeles Times
GM will move forward with four core brands _ Chevrolet, Cadillac, Buick and GMC. The company plans to cut 21,000 employees, about 34 percent of its work force, and reduce the number of dealers by 2,600. GM was announcing plans to close 11 facilities, idle three others and name the buyer of its Hummer division. GM’s stock dropped to its lowest price in company history Friday, closing at just 75 cents. The shares will be virtually worthless in a Chapter 11 reorganization.
“There is still plenty of pain to go around, but I’m confident this is far better than the alternative,” said Sen. Carl Levin, D-Mich. “It’s a new beginning, it’s a rebirth, it’s a new General Motors.”
The bankruptcy represents a dramatic downfall for GM, which was founded in 1908 by William C. Durant, who brought several car companies under one roof and developed a strategy of “a car for every purse and purpose.” Longtime leader Alfred P. Sloan built the global automaker into a corporate icon.
The billions in federal loans will come from the $700 billion rescue fund for the financial sector, representing another significant intervention into private enterprise. The Treasury has used funding to stabilize banks, take a majority ownership in insurance conglomerate American International Group and guide Chrysler through bankruptcy.
Despite its large ownership stake in GM, administration officials said the government intends to avoid interfering with routine management decisions and would strive to shed its ownership stakes “as soon as practicable.”
Obama ordered the firing of former GM CEO Rick Wagoner and instructed GM to trim itself to a break even point of 10 million U.S. car sales a year instead of its previous break even point of 16 million vehicles. Washington Post
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