THE NEWS: General Motors Corp. (GM) filed for Chapter 11
bankruptcy protection in the southern district of New York Monday.
The pre-packaged plan leaves the federal government in control of a
downsized auto maker, faced with the weakest market conditions in a
generation.
Judge Robert Gerber was named to preside over the largest-ever
U.S. industrial bankruptcy filing, case number 09-50026 in the
Manhattan court.
The Obama administration on Sunday said the government would
provide an additional $30 billion in financing to GM in return for
60% equity in the new company and $8.8 billion in debt and
preferred stock.
President Barack Obama is scheduled to speak about the filing
and the auto industry in an address at 11:55 a.m., followed by a
separate presentation by GM chief executive Fritz Henderson.
Canada and Ontario, which are injecting $9.5 billion for a 12%
stake, have a briefing scheduled for 10:45 a.m. EST.
The U.S. administration's auto task force has already
strong-armed provisional backing from a majority of bondholders and
unions representing workers in the U.S. and Canada, moves likely to
ease its passage through court.
The task force will also install restructuring expert Al Koch
and a team from AlixPartners LLP to work alongside GM CEO Fritz
Henderson, while the majority of the company's board will also be
replaced.
WHAT HAPPENS NEXT: The key question now is: Will it work?
The bankruptcy filing by the world's second-largest auto maker
will have repercussions across the global auto sector and
reverberate in broader financial markets. Judge Gerber is viewed as
crucial in determining whether the task force plan to have GM exit
protection within about 90 days is, in fact, realized. While many
elements have been "pre-packaged," the treatment of bondholders
could still see challenges to the plan in court, especially from
the large retail base. Unsecured creditors are slated to receive
10% of the common equity in the new GM, versus 17.5% for the health
fund run by the United Auto Workers union, with the balance held by
the government.
The most crucial question for GM is how it plans to accelerate
the operational turnaround and revise the planning forecasts
rejected by the task force at the end of March. The operational
plans will have a knock-on effect for the distressed auto supplier
sector, which supplies around 70% of the content by value to
manufacturers. The slide in global vehicle sales, most notably in
the U.S., has left many in, or on the brink of, bankruptcy, or
already under court protection. The government on Sunday reiterated
it plans to support auto suppliers. GM said it will keep plants
running through the bankruptcy.
Other issues include the fate of GM's pension obligations and
the role of the Pension Benefit Guaranty Corp.; the relationship of
GM and its European operations following a tentative deal to sell a
majority stake to a consortium led by parts maker Magna
International Inc. (MGA); treatment of creditors to Delphi Corp.,
GM's former parts unit; and the cost of culling its dealer network
and the higher number of employee buyouts outlined last week.
THE MARKETPLACE: U.S. light vehicle sales are expected to fall
to around 10 million this year from 13.1 million in 2008 and 16.1
million in 2006. With GM and Chrysler both cutting back production
further, rivals are stepping up output to take advantage of
negative customer perceptions of bankrupt auto makers. U.S. auto
production is expected to be higher in the second half of the year,
reversing its usual historical pattern. May auto sales data is
released June 2.
For more Dow Jones coverage, please see:
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-By Doug Cameron, Dow Jones Newswires; 312-750-4135;
doug.cameron@dowjones.com