Pursuing a course of action that many industry watchers had long postulated as inevitable, General Motors Corporation filed Chapter 11 bankruptcy this morning in New York. This government-shepherded and supported restructuring is expected to require 60-90 days to complete. Ultimately, it will result in the emergence of a "New GM" corporation comprised of the Buick, Cadillac, Chevrolet and GMC divisions as well as another "Old GM" whose assets, including Pontiac, Saab, Saturn and Hummer will be separated out and liquidated, although not necessarily in the same time window. The restructuring, which includes provisions to close at least nine more assembly/engine plants by the end of 2010 and sees additional reductions in the existing dealer network, will permit GM to eliminate nearly $80 billion in existing debt as well as trim headcount by 10,000-20,000 for both salaried and hourly labor as the company moves through this dramatic and painful downsizing. However, the plan also includes a provision for GM to use one of three other U.S. plants due to go on "standby" status to build a new small car here in place of a vehicle that previously was slated to be manufactured in China.
Under terms this new corporate framework, the U.S. government will end up converting the $20 billion it already has invested in GM and $30 billion more in new pledged bridge funding to a roughly 60-percent ownership position of "new" GM common stock shares. It will also maintain an additional $8.8 billion in direct debt and preferred shares. North of the border, the Canadian/Ontario governments will continue holding $1.7 billion in loans but see $9.5 billion in subsidies transition into an 11.7-percent share stake of this new GM operation. The United Auto Workers' VEBA (Voluntary Employees Beneficiary Association) trust fund will end up with a 17.5-percent share interest. Bondholders, the majority of whom had balked at GM's initial offer to swap about $27 billion in their secured investment for a flat 10-percent chunk of the post-bankruptcy entity, accepted a subsequent offer made late last week that will sweeten that original cut with warrants to buy an additional 15 percent of New GM shares in the future.
Hours after the GM filing, President Obama held a press conference in which he reiterated his intent to take a "hands-off approach that would allow GM to operate as an independent entity without government interference in day-to-day decision making and to get out of its "reluctant shareholder" position as quickly as possible. Later, GM's CEO Fritz Henderson reiterated the absolutely critical need for speed in expediting this restructuring process -- a move that would help GM start to generate positive cash flow even during an industry recovery process that seems destined to proceed at an agonizingly slow pace.