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Bankruptcy Judge OK’s General Motors Sale Plan
Posted By RVBusiness On July 6, 2009 @ 10:31 am In Breaking News | No Comments
A bankruptcy judge has ruled that General Motors Corp. can sell the bulk of its assets to a new company, potentially clearing the way for the automaker to quickly emerge from bankruptcy protection.
U.S. Judge Robert Gerber said in his 95-page ruling late Sunday (July 5) that the sale was in the best interests of both GM and its creditors, whom he said would otherwise get nothing, according to the Associated Press.
“As nobody can seriously dispute, the only alternative to an immediate sale is liquidation – a disastrous result for GM’s creditors, its employees, the suppliers who depend on GM for their own existence and the communities in which GM operates,” Gerber wrote in his ruling.
The ruling comes after a three-day hearing that wrapped up Thursday, during which GM and government officials urged a quick approval of the sale, saying it was needed to keep the automaker from selling itself off piece by piece.
“This has been an especially challenging period, and we’ve had to make very difficult decisions to address some of the issues that have plagued our business for decades,” GM President and CEO Fritz Henderson said in a statement early today. “Now it’s our responsibility to fix this business and place the company on a clear path to success without delay.”
But attorneys for some of GM’s bondholders, unions, consumer groups and individuals with lawsuits against the company argued for its rejection, saying that their needs were being pushed aside in favor of the interests of GM and the government.
It was unclear early today if any of those groups planed to appeal Gerber’s decision. The deadline to appeal is noon Thursday, after which point Gerber’s order takes effect and the sale is free to close.
Last month, a group of bondholders and others took their objections to Chrysler LLC’s sale plan all the way to the Supreme Court, delaying the Auburn Hills, Mich.-based automaker’s exit from bankruptcy protection.
Several consumer groups have objected to provisions in the sale that free the new company from liability for consumer claims related to incidents that occurred before GM went into bankruptcy protection.
That means that people injured by a defective GM product in connection with an incident that occurred before June 1 would have to seek compensation from the “old GM,” the collection of assets leftover from the sale, where they would be less likely to receive compensation.
Joanne Doroshow of the Center for Justice & Democracy said in a statement the issue “is far from over.”
“It is morally reprehensible that GM will pay for injuries and deaths that occur after the bankruptcy process, but not for the hundreds of victims who have already been hurt by defective GM cars,” Doroshow said.
GM’s government-backed plan for a quick exit from Chapter 11 hinges on the sale, which will allow the automaker to leave behind many of its costs and liabilities. The Treasury Department has vowed to cut off funding to GM if the sale doesn’t go through by July 10.
The Detroit car maker’s Chapter 11 filing on June 1 was the fourth-largest in U.S. history.
GM will leave bankruptcy court with significantly reduced debt and labor costs, as well as fewer dealerships and brands. But it’s still operating in an environment where fewer American are buying cars. At the current pace, automakers will sell around 9.7 million vehicles this year. That’s a reduction from sales of more than 16 million vehicles as recently as 2007.
In June, the automaker captured 20.3% of the U.S. market. GM has estimated that it can maintain a market share between 15% and 17%, reflecting its plan to sell off three brands and end its Pontiac line.
GM has several new cars coming to market next year, including the Chevrolet Volt, a plug-in hybrid electric car. The Volt might be a promising vehicle, but with an expected $40,000 price tag it might only be a niche player, said James E. Schrager, clinical professor of entrepreneurship and strategy at the University of Chicago Graduate School of Business.
Upcoming small-car models such as the Chevy Cruze and Spark may fare well, but will face heavy competition from foreign automakers already in that segment of the market and from Ford Motor Co.’s new Fiesta, which the company has already started advertising.
Overall, GM’s major challenge will be winning back customers who have migrated to foreign competitors. Some newer GM models have received good reviews for quality and performance, but that hasn’t persuaded enough consumers to buy GM cars.
“The problem is the status of General Motors’ brands,” Schrager said. “They have to have some really breakthrough products that work and resonate with consumers. And they may have to slowly, over time, turn the image around.”
The company has received $50 billion in taxpayer funds. In exchange for those funds, the government will own about 61% of the “new GM.” The Obama administration has said it does not plan to interfere with the day-to-day running of the company, though government has been involved in the selection of the new company’s 13-member board of directors and change of control transactions.
The company, in consultation with the government, named former AT&T Inc. CEO Ed Whitacre to chair the board. Whitacre is in the process of choosing four new directors.
The United Auto Workers union, which gets a 17.5% stake through its health care trust for retirees, has selected Stephen Girsky, a former GM adviser and Morgan Stanley analyst, to serve on the board. The Canadian government, which will control an 11.7% share, also will pick one member.
Henderson, who succeeded former CEO Rick Wagoner in March when the Obama administration forced Wagoner to resign, has said he expects to remain at the helm of the automaker as it comes out of bankruptcy.
Henderson has already said he would cut about 34% of GM’s executive ranks by the end of the year.
Assets that GM does not sell to the new company will become part of the separate “old GM,” which the company said Monday will be known as Motors Liquidation Co., and will be sold to the highest bidder under court supervision.
The old GM will include a smattering of properties, several of which are facilities already slated to be closed.
Other assets to be filed under the old GM include brands like Hummer, Saturn and Saab, for which GM has lined up buyers. They also include all current GM common stock, which – despite its active trading on over-the-counter markets – will soon be worthless.
The old GM will remain an entity until all of the facilities are sold off, a process that could take months or years to complete.
The government has said it plans to provide about $1.18 billion to fund the wind-down process.
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