General Motors Corp. filed for Chapter 11 bankruptcy protection today (June 1) as part of the Obama administration’s plan to shrink the automaker to a sustainable size and give a majority ownership stake to the federal government, according to the Associated Press.
GM’s bankruptcy filing is the fourth-largest in U.S. history and the largest for an industrial company. The company said it has $172.81 billion in debt and $82.29 billion in assets.The fallen icon of American industrial might will rely on $30 billion of additional financial assistance from the Treasury Department as it reorganizes. That’s on top of about $20 billion in taxpayer money GM already has received in the form of low-interest loans.
GM will follow a similar course taken by Chrysler LLC, which filed for Chapter 11 protection in April and hopes to emerge from its government-sponsored bankruptcy this week.
The plan is for the federal government to take a 60% ownership stake in the new GM. The Canadian government would take a 12.5% stake, with the United Auto Workers getting a 17.5% stake and unsecured bondholders receiving 10%. Existing GM shareholders are expected to be wiped out.
President Barack Obama is scheduled to address the nation about GM’s future at midday from Washington, and GM CEO Fritz Henderson is to follow him with a news conference in New York.
Beyond the bankruptcy announcement today, GM is expected to reveal 14 plants it intends to close. One of those plants, however, will be retooled to build a small car.
GM’s filing comes 32 days after a Chapter 11 filing by Chrysler, which also was hobbled by plunging sales of cars and trucks as the worst recession since the Great Depression intensified.
The third of the one-time Big Three, Ford Motor Co., has also been stung hard by the sales slump, but it avoided bankruptcy by mortgaging all of its assets in 2006 to borrow roughly $25 billion, giving it a financial cushion GM and Chrysler lacked.
The downsized GM’s brands will be limited to Chevrolet, Cadillac, GMC and Buick. Its Pontiac, Saturn, Hummer and Saab operations will be either sold or closed. GM said it was finalizing a deal to sell Hummer, and plans for Saturn are expected to be announced within weeks.GM, whose headquarters tower over downtown Detroit, said it believed the filing was not an acknowledgment of failure, but a necessary way to cleanse itself in an orderly fashion of problems and costs that have dogged it for decades.
Trading of GM shares was halted early today after they plunged Friday as low as 74 cents, the lowest price in the company’s 100-year history. GM will be kicked out of the Dow Jones industrial average because rules established by the News Corp. unit that oversees the index prohibit it from including companies that have filed for bankruptcy.