Ways2trade: Big fall: GM drives into bankruptcy

Monday, June 1, 2009

Big fall: GM drives into bankruptcy

Largest US Manufacturer To Turn Insolvent

Detroit/Washington: General Motors filed for bankruptcy on Monday, forcing the 100-year-old automaker once seen as a symbol of American economic might and dynamism into a new and uncertain era of government ownership. The bankruptcy filing is the fourth-largest in US history and the largest ever in American 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 highstakes effort, a bankruptcy judge approved the sale of substantially all of 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 reorganisation 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."
    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 reorganisation that will be undertaken with $50 billion in government financing.
    By preparing to take a 60% stake in a reorganised 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 labour costs are slashed under a new contract with the United Auto Workers union.
    The governments of Canada and the province of Ontario agreed to provide another $9.5 billion to GM in a late addition to the plans for the bankruptcy that have been taking shape for weeks, US officials said.
    GM plans to close 11 US facilities and idle another three plants. It has not provided an updated target for job cuts. AGENCIES
THE GREAT CRASH
GM's bankruptcy filing is the fourth-largest in US history and the largest for an industrial company. It has $172.8 billion in debt and $82.3 billion in assets. Lehman Brothers Holdings' Sept 2008 bankruptcy filing is the nation's largest with $691 billion in assets. Others were Washington Mutual ($327 billion asset) and WorldCom ($107 billion asset) GM will get $30 billion assistance from Treasury and $9.5 billion from Canada, over and above $20 billion received
While the US govt will take 60% stake in new GM, Canadian govt will take 12.5%. United Auto Workers will get 17.5% and bondholders 10%. Existing GM shareholders are expected to be wiped out. US expects the new GM could emerge from bankruptcy within 60 to 90 days
GM is expected to close down 14 plants. One plant will be retooled to build a small car
The downsized GM's brands will be limited to Chevrolet, Cadillac, GMC and Buick. Pontiac, Saturn, Hummer and Saab will be either sold or closed
GM will offer buyouts and early retirement packages to all of its 61,000 hourly workers. It also has about 27,000 white-collar employees. GM employed 618,000 Americans in 1979, more than any other company