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WASHINGTON: General Motors, the humbled auto giant that has been part of
American life for more than 100 years, will file for bankruptcy protection on
Monday in a deal that will give taxpayers a 60 per cent ownership stake and
expand the government's reach into big business.
Underscoring the government's extraordinary role, President Barack Obama planned
to announce his support for GM's restructuring strategy at a midday appearance
at the White House, much as he did in April when Chrysler sought court
protection.
GM president and CEO Fritz Henderson planned to hold a press conference in New
York immediately following Obama's announcement.
Administration officials said late Sunday the federal government would pump $30
billion dollars into GM as it makes its way through bankruptcy court. That's
besides the $20 billion in taxpayers' money that the Treasury already lent to
the automaker.
The money would come from what remains of the $700 billion rescue fund for the
financial sector.
The officials, speaking on condition of anonymity in advance of Obama's public
remarks, said the administration expects the court process to last 60 to 90
days.
If successful, GM will emerge as a leaner company with a smaller work force,
fewer plants and a trimmed dealership force. The company will stick with its
four core brands, Chevrolet, Cadillac, Buick and GMC.
'There is still plenty of pain to go around, but I'm confident this is far
better than the alternative,' Sen. Carl Levin said Sunday after being briefed
about the developments by the president.
'It's a new beginning, it's a rebirth, it's a new General Motors.'
The government's ownership stake and huge financial injection represents yet
another remarkable intervention into the American private sector.
The Treasury has stepped in to help banks, it has taken majority ownership in
insurance conglomerate American International Group and it has guided Chrysler
through bankruptcy protection proceedings.
Despite its sizable ownership, administration officials said the government
intends to stay out of day-to-day management decisions. It says it intends to
shed its ownership stakes 'as soon as practicable.'
'Our goal is to promote strong and viable companies that can quickly be
profitable and contribute to economic growth and jobs without government
involvement,' a fact sheet issued by the White House and the Treasury Department
said.
Still, it was the Obama administration that instructed GM to trim itself to a
point that it could break even by selling 10 million cars a year. It's current
break even point is 16 million cars.
GM plans to name turnaround executive Al Koch to serve as its chief
restructuring officer to help the company through bankruptcy protection, said a
person familiar with the matter. The person, who spoke on condition of
anonymity, was not authorized to speak about the appointment publicly.
Koch, a managing director with AlixPartners LLP, is a veteran turnaround
specialist who helped Kmart Corp. through its bankruptcy reorganization. He will
lead the separation of the automaker's assets into a 'New GM' and the remaining
parts of the company that will form 'Old GM.'
Koch will lead the management team that winds down the 'Old GM' company once the
automaker emerges from bankruptcy.
A majority of the Detroit automaker's unsecured bondholders have accepted a deal
viewed as crucial to reorganization, and Germany agreed to loan $2 billion to
GM's German unit, Opel, as part of its acquisition by a Canadian auto parts
supplier.
The moves don't change much for GM, but better prepare it for a bankruptcy
protection filing, said Rebecca Lindland, an auto analyst for the consulting
firm IHS Global Insight.
'The more agreements GM has with its interests, the better the bankruptcy is
going to go,' she said. 'It's not a game changer at all.'
It would be the largest industrial bankruptcy in US history, and the
fourth-largest overall. In addition, a GM bankruptcy would be unprecedented as
the federal government would pump billions more into the company, and take a
72.5 per cent interest in the automaker.
On Sunday a group of large, institutional bondholders, representing 54 per cent
of GM bondholders, agreed to exchange their unsecured bonds for a 10 percent
stake in a newly restructured company, plus warrants to purchase a greater share
later. They had balked at an earlier offer, that gave them 10 per cent of the
company without the warrants. |
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