Gm Speeds Toward Restart

Auto Giant's Bankruptcy Filing Is Expected Today

June 01, 2009|By Jim Puzzanghera and Ken Bensinger | Jim Puzzanghera and Ken Bensinger,Tribune Washington Bureau

WASHINGTON - - General Motor Corp., long the titanic symbol of American might and lately a stark reminder of the nation's failings, plans to file for the largest industrial bankruptcy in U.S. history today.

The move, part of a government-led restructuring, ends months of anxiety and uncertainty about the legendary automaker, which only a decade ago was the world's largest company. GM becomes another victim of the deep recession, formally succumbing to years of bad management, questionable quality, changing consumer tastes and a historic collapse of global auto sales.

The company joins Chrysler as the bankrupt duo of Detroit's once-formidable Big Three.

But the Obama administration is touting the bankruptcy filing as the beginning of a new era for GM, a painful but necessary court-supervised restructuring that will make the company profitable again and a leader in producing fuel-efficient vehicles.

"For the better part of a century, the General Motors Corporation has been one of the most recognizable and largest businesses in the world," the White House said in a four-page statement on GM's restructuring. "Today will rank as another historic day for the company - the end of an old General Motors, and the beginning of a new one."

President Barack Obama is expected to announce the bankruptcy filing in a White House speech this morning, the end result of a 60-day restructuring challenge he gave to GM this spring, senior administration officials said Sunday. GM Chief Executive Fritz Henderson will hold a news conference shortly after that in New York, where the company will submit its bankruptcy filing.

Like Chrysler, which could emerge from a government-overseen bankruptcy of its own as early as today, GM will sell its best assets into a new company, leaving much of its debt and unwanted assets behind.

Unlike the sudden bankruptcy of Lehman Bros. last September, which triggered the financial crisis and the government's unprecedented intervention into the economy, GM's Chapter 11 reorganization is a carefully planned and long-telegraphed petition spearheaded by the Obama administration.

It aims to help the automaker emerge from bankruptcy in two to three months as a smaller, leaner and more competitive company.

Still, to stay afloat, GM will require about $30 billion in government money on top of about $20 billion already extended. The additional loans will make GM the second-largest recipient of bailout money, behind insurance giant American International Group, and will give the U.S. government a 60 percent ownership stake in the company. Obama administration officials said they don't expect to extend any more taxpayer money to GM.

"One never says never ...but this is it in respect to support for GM," said a senior administration official, who spoke on condition of anonymity because the bankruptcy had not been filed.

Although the filing was expected, the fact that GM, of all companies, has been reduced to bankruptcy is a startling development.

The century-old automaker was for decades the very symbol of U.S. corporate power, selling about half the cars on the road in the U.S. in the 1950s and 1960s. Today, GM's U.S. market share has dropped below 20 percent as the Detroit company has steadily ceded ground to Japanese brands.

GM used to employ more than 500,000 workers; today fewer than 100,000 get their paychecks from the company affectionately known as "the General."

"This is a historic and important moment," said Ron Seeber, a vice provost at Cornell University and a specialist in labor and industrial history. "It's very, very significant and truly the last stage of the decline of the American auto industry."

Senior administration officials took pains Sunday to say the government intended to be "passive investors" with its 60 percent ownership stake in GM. The Canadian government will receive a 12 percent equity stake in exchange for providing $9.5 billion to GM.

The U.S. government "will only vote on core governance issues, including the selection of a company's board of directors and major corporate events or transactions," according to the White House.

"The government has no desire to own equity stakes in companies any longer than necessary, and will seek to dispose of its ownership interests as soon as practicable," the White House said.

One senior administration official added, "The government will not interfere with or exert control over day to day operations."

But the Obama administration forced out former Chief Executive Rick Wagoner this spring, replacing him with Henderson. And some lawmakers have raised concerns about government involvement in decisions about which GM plants to idle.

Senior administration officials would not comment on any GM operational issues Sunday, leaving that to company executives.

GM will be preparing to close down at least 11 of its plants, idle three others, sell or eliminate four of its brands and end its relationship with more than 40 percent of its franchised dealers.

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