May 29, 2009
As of now, plans are that lawyers for General Motors will go to court Monday and seek Chapter 11 bankruptcy protection for the nation's largest automaker. The move will be the catalyst for a number of sweeping changes planned for the car company.
With the U.S. Government owning more than 70 percent of the new GM and pumping in billions of dollars, the company plans to pare down its product offerings. Cadillac, Chevrolet, Buick and GMC will survive Pontiac, Saturn and Hummer will not. GM will close as many as 16 factories as part of its streamlining effort.
With U.S. government influence in the boardroom, GM will emphasize smaller, more fuel efficient cars, hoping American consumers will prefer them to the trucks and SUVs that have been GM's profit mainstay over the last decade or so.
To help the reorganized GM quickly become profitable, the government is converting its loans to common stock while pressing bondholders to accept steep losses. The United Auto Workers Union, as it did in the Chrysler bankruptcy, will end up with a larger stake in the new GM, but union leaders have agreed to some pay cuts.
By reducing the amount of corporate debt to $17 billion, auto industry analysts say the new GM will be able to return to profitability much faster on lower sales. Treasury Department officials are hoping to complete the bankruptcy process within 60 to 90 days.
GM CEO Fritz Henderson signaled earlier this month that the car company would most likely end up in bankruptcy court.
In a May 11 conference call witth reporters, Henderson suggested a GM bankruptcy was the best way to handle the companys huge restructuring needs and signaled the bargaining is pretty much over.
We dont have any plan to make modifications at this point, Henderson said during the conference call.
It may be that GM no longer considers bankruptcy to be the kiss of death it once did. Whats changed?
For one thing, Chrylser has already broken ground in that area. The nations number three car maker has already filed for Chapter 11 protection as it completes a merger with Fiat.Also, the government has stepped in to reassure consumers that the U.S. Treasury will back new car warranties if they purchase a car from a company in bankruptcy.
