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GM aims for restart as Chrysler gets green light

(Agencies)
Updated: 2009-06-02 13:53

WASHINGTON – General Motors moved to restart the storied automaker with a bankruptcy court filing, aiming to wipe out debts piled up over decades and emerge as a viable competitor.

An advertisement for General Motors is displayed near the company's headquarters in Detroit, Michigan. General Motors moved to restart the storied automaker with a bankruptcy court filing, aiming to wipe out debts piled up over decades and emerge as a viable competitor. [Agencies]

"Today marks the beginning of what will be a new company," GM chief executive Fritz Henderson said in announcing the massive government-backed bankruptcy plan.

"Today marks a defining moment in the reinvention of GM as a leaner, more customer-focused, and more cost-competitive company that, above all, can quickly generate winning bottom line results," said Henderson, who took the helm at GM in late March.

The filing in the same New York court that approved a speedy restructuring for Chrysler late Sunday aims to allow the former world number one carmaker to re-emerge within 60 to 90 days.

The new firm "will be built from only GM's best brands and operations, and it will be supported by a stronger balance sheet due to a significantly lower debt burden and operating cost structure than before," the Detroit giant said in a statement.

GM's filing comes after years of struggling and losing its crown last year as the world's top automaker. GM last made a profit in 2004, earning 2.8 billion dollars. It lost nearly 88 billion dollars from 2005 through the first quarter of 2009.

Special coverage:  Global Auto Industry Woes Related readings:  GM to reorganize in government-led bankruptcy  Official: US gets 60% of GM after bankruptcy  With bankruptcy looming, a new GM begins to emerge  Judge OKs Chrysler's steps toward sale to Fiat  US govt firmly behind the wheel at GM

US President Barack Obama said the government-backed bankruptcy plan for GM was "viable" and "achievable" and would help GM rise again "quickly."

"Our goal is to get GM back on its feet, take a hands-off approach and get out quickly," Obama said, arguing that GM, its bondholders, workers and management had come together with a joint plan able to stave off liquidation.

GM listed assets of 82.3 billion dollars and debts of 172.8 billion in the case, assigned to Judge Robert Gerber, in one of the biggest bankruptcy cases in US history.

Once the symbol of US industrial prowess, GM enters the process aiming for a so-called pre-packaged bankruptcy with government financing and agreements in place to cut labor costs, to swap much of its debt for equity and reduce its liabilities by 50 percent.

Senior US officials pledged to provide 30 billion dollars to the "new GM" to emerge from the process, on top of nearly 20 billion dollars already loaned to the ailing firm.

The plan would give the US government a 60 percent stake in GM, while the governments of Canada and Ontario will provide an additional 9.5 billion dollars in financing and receive a 12 percent stake.

Officials said the process is expected to be similar to that of Chrysler, which is expected to emerge from bankruptcy protection this week after just over a month.

"We've seen with the Chrysler bankruptcy, which for a number of reasons may have been easier, it can be done," said analyst Rebecca Lindland at IHS Global Insight. "This is GM's opportunity to right size itself."

The largest US automaker will close 11 plants and idle three others as it slashes its operating costs in order to lower its break-even point by 40 percent in terms of overall US industry sales.

Officials said that the Obama administration has no intention of nationalizing General Motors over the long term and will not be participating in its day-to-day operations.

Creditors holding about 54 percent of GM bonds agreed to a plan that would swap 27.1 billion dollars in debt for a 10 percent stake and warrants allowing them to buy an additional 15 percent stake, officials said.

Bondholders who rejected the plan could still fight it in court, but the government maintains they could end up with little or nothing if they take that path.

A retiree health care trust will receive a 17.5 percent stake in the new GM and 6.5 billion dollars in preferred stock in exchange for forgiving much of a 20-billion-dollar debt.

The European Opel and Vauxhall subsidiaries will leave GM under a rescue engineered over the weekend in Germany with support from a Canadian company and a Russian bank.

The GM filing came hours after a US bankruptcy judge approved the sale of distressed Chrysler to a group led by Italy's Fiat, saying this was the only was to save the company.

An appeal was lodged Monday by creditors objecting to the plan and asked for halt or "stay" to prevent the deal from closing.

Jonathan Lipson, a Temple University law professor, said this was a long shot.

"I tend to give the appellants here very slender odds," he said, arguing there is no credible alternative plan.

"I think it reasonable to expect that if this were bogged down on appeal or reversed Fiat may well walk away."

The US Treasury agreed to provide Chrysler with some nine billion dollars in emergency aid. the Italian automaker must repay this money if it wants to take a majority stake in the Detroit firm.