In Bankruptcy GM Seeks to Become Leaner

123jump.com Staff
01 Jun, 2009
New York City

GM files bankruptcy protection to emerge as a smaller and leaner automaker with domestic market focus. Most of its international divisions will be sold. The automaker will shut at least 14 plants, eliminate 21,000 jobs, shed $79 billion in debt and wipe out its current stock holders.

[R]10:00 AM New York – General Motors files bankruptcy protection and emerge as a smaller and leaner automaker with domestic market focus. Most of its international divisions will be sold or dismembered from the company. The automaker will shut at least 14 plants, eliminate 21,000 jobs, shed $79 billion in debt and wipe out its current stockholders.[/R]

General Motors filed for bankruptcy on Monday in a federal court in Manhattan, New York with a plan to restructure and operate as a smaller and leaner automaker.

The fate of the once largest automaker in the world was sealed last week after the bond holders rejected its plan to swap debt for a stake in the company.

General Motors ((GM)) listed $82.3 billion in assets and $172.8 billion in liabilities. The bondholders represented by Wilmington Trust Company are listed as the largest creditors with $22.8 billion followed by various groups of United Auto Workers with $20.6 billion and Deutsche Bank with $4.4 billion.

General Motors fell swiftly as losses mounted after industry sales declined steadily in the last two years. The industry sales have declined from nearly 19 million units to 10 million units and may either decline or stay near the current level.

If the auto sales do not rebound by 2011, General Motors along with many other automakers may have to shrink again and look for additional capital either from investors or from governments of Canada and the U.S.

After the reorganization, the U.S. will own 60% stake in the company, Canada will have 12%. The union through its healthcare and retirement trust will hold 20% and bond holders 10%. Te union and bondholders are assigned warrants that will increase their stakes in the company at a later date and the stakes of the governments will fall to 50% if GM hits certain milestones in market capitalization.

The U.S. will invest additional $30 billion in aid on top of $20 billion in exchange of 60% stake and Canada will invest $9.5 billion in exchange of 9.5% stake in GM. The U.S. task force responsible for GM organization stressed in a message to reporters that it plans to be silent investor and not influence the day-today running of the company and new product development.

The fate of auto workers and dealers may not be certain. In bankruptcy, GM plans to shed $79 billion in debt, gain concessions from workers and shut between 14 and 18 plants and reduce workforce by 21,000. The automaker will also shut 40% or 3,600 dealers of 6,000 dealers.

GM also plans to eliminate or sell Saturn, Pontiac and Hummer while is Saab unit is under reorganization in Sweden and Opel division in Germany with operations in UK will be sold to Canada based Magna International.

GM will emerge from the bankruptcy with Chevrolet, GMC, Buick and Cadillac brands.

General Motors is expected to emerge from bankruptcy in less than 90 days and its stock will be removed from the benchmark indexes Dow Jones Industrial Average and the S&P 500 and will lose its listing and will not be relisted at least till September. GM has been the member of Down Jones index since 1925.

The GM bankruptcy case is handled by the U.S. Bankruptcy Judge Robert Gerber who also presided over the bankruptcy cases of Lyondell Chemical, Adelphia Communications Corp and BearingPont Inc.