AUTO INDUSTRY NEWS

GM Files for Bankruptcy

GM Files for Bankruptcy image

Text: Jude Morte / Photos: | posted June 03, 2009 09:00

Reaches agreement with US government

GM has filed for voluntary Chapter 11 bankruptcy to create a leaner, stronger "New GM" positioned for a profitable, self-sustaining and competitive future. The New GM is expected to launch in about 60 to 90 days as a separate and independent company from the current GM, with two distinct advantages: it will be built from only GM's best brands and operations, and it will be supported by a stronger balance sheet due to a significantly lower debt burden and operating cost structure than before. The New GM will incorporate the terms of GM's previous recent agreements with the United Auto Workers (UAW) and Canadian Auto Workers (CAW) unions and will be led by GM's current management team.


GM has asked the US government to to approve a number of steps to protect current and new GM customers, ensure that its operations will continue uninterrupted during the US-government-supervised process, and provide for a smooth transition.

Those steps are the following:

1)GM dealers will continue to service GM vehicles and honor GM warranties, with U.S./Canadian government guarantees of manufacturers' warranties as seal of approval to reassure consumers.

2)GM will use its cash-on-hand and the stimulus package to: ensure an uninterrupted supply of goods and services and provide for other cash requirements prior to closing of the asset sale; fund liabilities to secured lenders; and provide contingency funding to handle any potential unexpected needs. Furthermore, in conjunction with the sale, the U.S. Treasury and the Canadian and Ontario governments will provide funds to administer the wind down of the remaining assets and the closing of the chapter 11 cases.

3)No layoffs

GM's North American manufacturing operations continues to monitor production output to make sure it aligns with market demand, and currently intends to ramp up manufacturing operations as market demand improves during the latter half of the year.

Four brands will be retained in the U.S. - Chevrolet, Cadillac, Buick and GMC. Nearly 8000 will be cut by the end of 2009 and reduction in retiree benefits for salaried retirees and non-UAW hourly retirees will be made.

A more focused network of 3,600 GM dealers in the US shall provide a higher level of customer service.

On March 31, 2009, GM reported consolidated debt of $54.4 billion, along with additional liabilities, including an estimated $20 billion obligation to the UAW. Under GM's agreements with the U.S. Treasury, the Canadian and Ontario governments, and the UAW and CAW, and with the support of a substantial portion of GM's unsecured bondholders, upon closing of GM's sale of assets to the New GM, the New GM's capital structure will be comprised of US$17 billion in total consolidated debt.

There's an additional US$9 billion of perpetual preferred stock with a 9 percent annual dividend, payable quarterly in cash, $2.1 billion of which will be issued to the U.S. Treasury, $0.4 billion of which will be issued to the Canadian and Ontario governments and $6.5 billion of which will be issued to the UAW.

Equity will be divided as follows - 60.8 percent of which will be owned by the U.S. Treasury, 11.7 percent of which will be owned by the Canadian and Ontario governments, 17.5 percent of which will be owned by the UAw, and 10 percent of which has been reserved for GM for the benefit of the unsecured bondholders and other unsecured creditors of GM.

GM Europe will be put on sale .

The following products will be launched by GM in the next 2-3 years - the Chevrolet Camaro, the Buick LaCrosse, the Cadillac SRX crossover and CTS Sport Wagon, the Chevy Equinox and GMC Terrain, the Chevrolet Cruze, and Chevrolet Volt electric car.