by CBS/AP
Published: Mon, June 01, 2009 - 8:16 am CST
Last Updated: Mon, June 01, 2009 - 8:18 am CST
(CBS/AP) General Motors, the humbled auto giant that has been part of American life for more than 100 years, filed for Chapter 11 bankruptcy protection Monday in a deal that will give taxpayers a 60 percent ownership stake and expand the government's reach into big business. GM's bankruptcy filing is the fourth-largest in U.S. history and the largest for an industrial company. The company said it has $172.81 billion in debt and $82.29 billion in assets.
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.
In addition to the 60 percent U.S. stake, the Canadian government would take a 12.5 percent stake, with the United Auto Workers getting a 17.5 percent stake and unsecured bondholders receiving 10 percent. Existing GM shareholders are expected to be wiped out.
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 32 days ago.
Chrysler's bankruptcy process went quickly, with a federal judge approving the sale of the company's assets to Italian automaker Fiat late Sunday.
GM president and CEO Fritz Henderson planned to hold a press conference in New York immediately following Mr. Obama's announcement.
The money would come from what remains of the $700 billion rescue fund for the financial sector.
The reorganization plan aims to make GM profitable in a struggling U.S. auto market. Currently, it sells about 9 million vehicles in the country every year. At its peak, the U.S. market sold 16 million, CBS News business producer Guy Campanile reports.
Speaking to CBS' The Early Show Monday, Michigan Gov. Jennifer Granholm said if the company was not filing for bankruptcy, "we'd be talking about liquidation."
Time has not been kind to the company. In 1961, GM commanded 51 percent of the U.S. auto market, compared to 21 percent today, reports CBS News correspondent Dean Reynolds. It once employed 618,000 workers (in 1979) but now has fewer than 90,000 on its U.S. payroll. The automaker is expected to further cut payroll to just 60,000 by the end of next year.
"There is a lot of tension. The workers here have been under a lot of stress all hoping and praying that the plant survives," one GM worker in Tennessee told CBS News.
The bankruptcy papers will permanently close nine more plants and idle three others to trim production and labor costs under bankruptcy protection. 21,000 more jobs will be eliminated. GM will also outline additional dealership cuts that could total 2,600.
Assembly plants in Pontiac, Mich., and Wilmington, Del., will close this year, while plants in Spring Hill, Tenn., and Orion, Mich., will shut down production but remain on standby.
Powertrain plants in Livonia, Flint and Ypsilanti Township, Mich. will close next year, along with plants in Parma, Ohio, and Fredericksburg, Va.
Stamping plants in Indianapolis and Mansfield, Ohio, also will close. A stamping plant in Pontiac, Mich., will be idled but remain in a standby capacity.
GM will also close service and parts warehouses in Boston, Jacksonville, Fla., and Columbus, Ohio, by the end of this year.
The downsized GM's brands will be limited to Chevrolet, Cadillac, GMC and Buick. Its Pontiac, Saturn, Hummer and Saab operations will be either sold or closed. GM said it was finalizing a deal to sell Hummer, and plans for Saturn are expected to be announced within weeks.
Trading of GM shares was halted early Monday after they plunged Friday as low as 74 cents, the lowest price in the company's 100-year history. GM will be kicked out of the Dow Jones industrial average because rules established by the News Corp. unit that oversees the index prohibit it from including companies that have filed for bankruptcy.
The officials, speaking on condition of anonymity in advance of Mr. 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.
"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.
One senior administration official insisted there "is no plan of any kind for further support beyond this point."
"One never says never," the official added, "but this is it for support of GM.".
There will be a new, humbler, more practical approach at GM and GM management," Ed Lapham, executive editor of automotive news, told Reynolds.
But some analysts say when a government takes over an automaker it can be worse than risky.
"It doesn't work. We saw that in England in the 60s when the government became the biggest shareholder of British Leyland," Lapham said. "You know, within a decade it was gone."
The GM plan will be filed under section 363 of the U.S. bankruptcy code. The 363 filing allows GM to spin a new debt-free company quickly out of bankruptcy. It's basically the "Chrysler Plan."
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.
Report: GM Sells Hummer To China
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