When General Motors, with support from the U.S. Treasury Dept., filed for bankruptcy protection in New York on the morning of June 1, few were surprised. However, the filing answers far fewer questions, particularly regarding suppliers and GM employees, than it asks.
In a speech that same morning, President Barack Obama said this was “the beginning of a new General Motors.” Referring to the action of the federal government, he said, “We are acting as reluctant shareholders, because that is the only way to help GM succeed.”
The U.S. will wind up owning about 60% of the company. The governments of Ontario and Canada will own 12%, GM bondholders will exchange their bonds for about 10% of the company, and the United Auto Workers (UAW) union will hold the rest, about 28%.
American taxpayers will put another $30 billion into GM, added to the $20 billion already spent to stem the bleeding of money over the past six to nine months. It is not clear what purpose that money will serve, but the overall goal is a smaller, more competitive GM.
GM employees have reason to be anxious in light of the company saying it would close plants in Delaware, Indiana, Michigan, and Ohio. In addition, plants in Tennessee and still others in Michigan were put on standby.
The bankruptcy filing lists GM’s 50 largest unsecured creditors, meaning those whose debt is not secured by collateral. They include Wilmington Trust Co., which holds $22.8 billion in debts on behalf of a group of bondholders, and certain affiliates of the UAW, which through the union’s health care trust, hold a bit more than $20 billion in obligations to employees.
The White House said that supplier contracts would stay in force, but such contracts can be voided in a bankruptcy proceeding. GM may be able to tell the bankruptcy court with which suppliers it wants to continue working. In the short term, the company will ask the court for permission to keep operating, which could entail payment of salaries and vendor invoices. Unlike Chrysler, GM says it will not halt production.
Coincidentally, the day before GM’s bankruptcy petition was filed, a federal judge cleared the way for Chrysler to exit its bankruptcy by approving the sale of most of the company’s assets to automaker Fiat of Italy. The Fiat deal was deemed by the presiding judge to be the only option for Chrysler that is currently viable.
Chrysler’s emergence from Chapter 11 protection could happen in just a little more than a month following the filing of the bankruptcy petition. Financial analysts and others close to the GM proceeding stated that it would likely not be as quick because GM is larger and more complex. —[email protected]