If the taxpayer did not step in to bailout GM, there would be no GM, an no Wagoner buyout.
It would have been dealt with in a real bankruptcy, not the nonsense that they filed.
http://blogs.wsj.com/autoshow/2009/06/01/general-motors-chapter-11-filing/General Motors’ Chapter 11 FilingBy WSJ Staff
General Motors filed for Chapter 11 bankruptcy protection Monday in the most dramatic step of U.S.-government-led efforts to restructure the iconic auto maker back to profitability.
Here is the PDF of the filing.
The bankruptcy filing, made in the U.S. Bankruptcy Court in Manhattan, marks the climax of a lengthy debate over the auto maker’s future after it sought a bailout from the U.S. government in December to stay alive. In the end, GM couldn’t complete its restructuring out of court and filed for Chapter 11 protection to get billions more in aid from U.S. taxpayers.
The U.S. government has agreed to provide GM with another $30 billion in aid, in addition to the $20 billion the car company has already borrowed, to see it through its restructuring and exit from bankruptcy protection. In return, the government will get a controlling stake in the company. The Canadian and Ontario governments are putting in $9.5 billion for a 12.5% stake.
In bankruptcy, the auto maker will split apart into two companies: a leaner “New GM” and an “Old GM,” which will include the pieces of the company that will be wound down. GM intends to accomplish the split through a Section 363 sale, which would transfer the “New GM” assets to an entity owned by the U.S. and Canadian governments, the United Auto Workers union and the company’s unsecured creditors.
GM’s restructuring has been carefully planned by the company itself and the Treasury Department, but it faces some uncertainty now that its fate is in the hands of a bankruptcy judge. The judge chosen to handle the case will have a major impact on the outcome of the case, especially if dissident bondholders mount a legal challenge to the restructuring. There’s also the risk that consumers will be scared off by the company’s Chapter 11 filing, causing sales
to fall even further.
The auto maker’s restructuring is more complicated than that of cross-town rival Chrysler LLC, which late Sunday obtained a bankruptcy judge’s approval to sell its assets to a new company managed by Italy’s Fiat SpA.
GM’s Chapter 11 filing, which follows Chrysler’s April 30 trip to bankruptcy court, marks a stunning reversal for the once-dominant U.S. auto industry. Two of the Big Three car companies are now operating under the supervision of a bankruptcy judge, on life support provided by the U.S. and Canadian governments.
GM’s steady decline began to accelerate earlier this decade. Multi-billion dollar losses and year-after-year sales slides have become the norm at GM, which has lost nearly $90 billion in the five years since former chief executive Rick Wagoner launched his restructuring plan.
Founded in 1908 in Flint, Mich., the auto maker once sold one of every two cars in the U.S. and employed 600,000 Americans at its peak in the late 1970s.
GM’s domination eroded over the years as competition from Asian rivals led by Toyota Motor Corp. (TM) began to lure customers from Detroit-built cars and trucks.
U.S. auto makers were never able to adapt. For decades, they had far too many dealers, workers, factories, brands and products for their fast-declining market share.
Starting in the 1980s, GM began to exact deep cuts and shift more production overseas where labor costs were cheaper. The decline in sales, however, far outpaced GM’s downsizing, which was stymied by battles with the UAW and the company’s own reluctance to change long-held practices.
By the middle of this decade, GM’s slow-but-steady decline began to turn into a free fall.
With losses piling up in 2005, the auto maker faced its first round of bankruptcy fears. Wagoner was able to steady the company with deep cuts and a labor deal with the UAW that shifted more legacy costs to retirees, a move that would have been unthinkable a decade earlier.
The breather would be short lived. GM and the entire U.S. auto industry were hit hard by the nation’s subprime mortgage crisis that began in late 2007. As homeowners watched their equity disappear, GM saw its sales fall further and its finance arm, GMAC, falter. Meanwhile, a spike in fuel prices that sent gasoline over $4 a gallon demolished sales of pickup trucks and SUVs, which had been a bastion of profits for GM through hard times.
The final blow came last fall when the meltdown on Wall Street sent U.S. auto sales plunging to multi-decade lows.
Falling sales pushed GM near collapse, sending the auto maker to Washington late last year in search of a bailout. The Bush administration extended the company $13.4 billion in loans to keep it operating. At the end of March, the Obama administration rejected GM’s turnaround plans but gave the company additional funding and 60 days to craft a new plan. As of May 23, GM had
received $19.4 billion in federal loans.
Over the past two months, GM intensified its talks with the UAW and its bondholders and expanded cost-cutting initiatives, even as bankruptcy appeared to be the most likely outcome with each passing day.
The company succeeded in coming to an agreement with the UAW. On May 26, the union’s retiree health fund agreed to accept 17.5% of the reorganized GM’s stock, $6.5 billion in preferred stock, warrants for another 2.5% stake and a $2.5 billion note. The union will also get one representative on GM’s board.
GM also announced plans to end its franchise agreements with 1,100 dealers and offer another round of buyouts to its unionized work force. The company also intends to shutter 11 plants, idle three and use another to build subcompact cars as part of its new deal with the UAW.
GM’s bondholders turned down an offer on May 26 to exchange $27 billion in debt for a 10% stake in the reorganized auto maker. Over the weekend, 54% of the auto maker’s bondholders agreed to a revised deal that gives them a 10% stake and warrants to buy another 15% of the company’s shares if they don’t oppose GM’s restructuring in bankruptcy court.
GM is expected to repay in full its secured lenders, including Citigroup Inc. and J.P. Morgan Chase & Co., which are owed about $6 billion. – Marie Beaudette
