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| GM files bankruptcy to spin off more competitive firm |
| Bloomberg / New York Jun 02, 2009, 00:23 IST |
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General Motors Corp, the world’s largest carmaker until its 77-year reign ended last year, filed for bankruptcy protection in the US with a plan to create a 21st-century company that can compete in world markets.
GM reported $82.3 billion in assets and $172.8 billion in debt. The US government will bankroll the transformation of the 100-year-old automaker, a victim of tumbling sales and higher gas prices. The US plans to convert much of its $50 billion of loans to a 60 per cent stake in the new entity. Today’s filing in New York coincided with a deadline for GM to convince a government auto task force that it could reorganise out of court through debt and cost-cutting.
“It’s a bit like the Titanic sinking,” said Stephen Pope, chief global strategist at Cantor Fitzgerald in London. “This is a step they should have taken more than a year ago, which could have put them in much better shape.”
GM is the largest manufacturer to file for bankruptcy, surpassing Chrysler LLC. Detroit-based GM plans to launch a new company in 60 to 90 days, armed with vehicles from its Cadillac, Chevrolet, Buick and GMC units for the US market. The court will supervise the sale or liquidation of unprofitable brands, such as Saturn and Hummer, and at least 11 unwanted factories.
GM said it has more than 100,000 creditors, and that unsecured creditors will recover some assets in the reorganization. Company operations outside the US weren’t included in the petition.
The case was assigned to US Bankruptcy Judge Robert Gerber in Manhattan, who also presides over the bankruptcies of Lyondell Chemical Co. and BearingPoint Inc. He presided over the bankruptcy of Adelphia Communications Corp as well.
“Today marks a defining moment in the reinvention of GM,” said company President and Chief Executive Officer Fritz Henderson. “The economic crisis has caused enormous disruption in the auto industry.”
GM listed in its petition as top creditors Wilmington Trust Co, representing bondholders owed $22.8 billion; International Union, the United Automobile, Aerospace and Agricultural Implement Workers of America, owed $20.6 billion; and Deutsche Bank AG, representing bondholders owed $4.44 billion. The Unofficial GM Dealers Committee, which said it represents more than 6,000 GM dealers in the US, filed a notice that it will take part in the bankruptcy litigation.
One idle GM facility in the US will be retooled to make small, fuel-efficient cars as part of an agreement with union workers, GM said May 29. GM’s Saab unit is reorganizing in Sweden. The German government picked Magna International Inc, a Canadian car-parts maker, to buy GM’s Opel unit.
The GM Chapter 11 petition filed today in the US Bankruptcy Court for the Southern District of New York makes the carmaker’s reorganisation the third-largest bankruptcy in US history, ranked by total assets listed in the initial filing, after Lehman Brothers Holdings Inc. and WorldCom Inc.
“Any suggestion that an American corporate icon like GM could file for bankruptcy would have been laughable a few years ago,” said Lynn Hiestand, a lawyer specialising in restructuring with Skadden, Arps, Slate, Meagher & Flom LLP.
Chrysler’s April 30 filing listed $39 billion in assets. The Auburn Hills, Michigan-based carmaker plans to transfer most of its assets to a new entity run by Italy’s Fiat SpA. Another bankruptcy judge in New York approved that deal last night.
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