General Motors announces bankruptcy, promising a new and better future
It was not much of a surprise yesterday when General Motors revealed the details of its bankruptcy plans; many in the automotive industry were wondering WHEN, not IF, GM would have to resort to such drastic measures. According to News.Yahoo.com "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."
As part of yesterday's announcement, General Motors CEO and President Fritz Henderson promised, "Today marks the beginning of what will be a New GM dedicated to building on only the very best of our recent progress in fuel efficiency, world-class quality, green technology development and outstanding design."
In a nutshell, General Motors is using the bankruptcy process to split into two companies: a leaner "New GM" which will focus on four core brands (Chevrolet, Cadillac, Buick, and GMC) and an "old GM" which will include the pieces of the company that GM will sell or close out. According to the Wall Street Journal "GM intends to accomplish the split through a Section 363 sale, which would transfer the 'New GM' assets to an entity owned by the U.S. and Canadian governments, the United Auto Workers union and the company's unsecured creditors."
The process is expected to take from 60 to 90 days, after which, said Henderson, "This New GM will be built from the strongest parts of our business - including our best brands and products. It will have a dramatically stronger balance sheet, with far less debt, which will allow us to better invest in our business and our future. It will have fully competitive labor costs and the ability to generate sustained and positive bottom-line performance."
In the meantime, the Canadian government is providing $9.5 billion and the United States government is making available about $30 billion dollars of federal assistance (in addition to the $20 billion in low-interest loans that GM has already received). As part of this restructuring process, General Motors will close 11 facilities in North America and idle three; it also expects to reduce the workforce to 40,000 hourly and 23,000 salaried employees by 2010. Operations outside the United States are not expected to directly affected, though production at plants in Mexico and Canada may be adjusted depending upon demand for vehicles built there.
Unfortunately, according to Money.CNN.com, "More than 650,000 retirees and their family members who depend on the company for health insurance will experience cutbacks in their coverage, although their pension benefits are unaffected for now....Investors in $27 billion worth of GM bonds, including mutual funds and thousands of individual investors, will end up with new stock in a reorganized GM worth a fraction of their original investment."
General Motors expects to close up to 2000 of its 6000 dealerships nationwide, and close or sell off unprofitable brands including Pontiac, Saab, Saturn, and Hummer (which is already rumored to be entertaining a Chinese buyer ).
A focus of these changes is to reduce costs in the North American region to allow a breakeven point at a U.S. total industry volume of approximately 10 million vehicles. This rate is substantially below the 15 to 17 million annual vehicle sales rates recorded from 1995 through 2007.
"We recognize the sacrifices that so many have been asked to make as we have worked to reinvent GM and the automobile," said Henderson. "GM deeply appreciates the support and the demonstration of confidence in our future by President Obama, the Presidential Task Force on Autos, the Canadian and Ontario governments, American and Canadian taxpayers, the unsecured bondholders who are supporting the proposed sale transaction, the UAW and CAW and their leadership, and the men and women of GM, including our retirees. You have enabled us to carry out this vital transformation for the good of GM, our customers and the economy, and we are working to validate your trust each day."
The most positive news to consumers today is the General Motors remains in operation, and will continue to offer warranty, service, and factory support programs with reassurance from the U.S. and Canadian Governments. In fact, General Motors Corporation reported today that it has received U.S. Bankruptcy Court approval to continue honoring all vehicle warranty programs and dealer incentive plans. This and other Court orders today enable GM to assure consumers that warranty coverage on GM vehicles will continue without interruption, whether they already own a GM vehicle or intend to buy a new one; that genuine GM parts will be supplied; and that GM-trained Goodwrench specialists will perform all services.
Also, the Court ordered all banks to honor employee paychecks, including those dated prior to the company's June 1, 2009 court filing. The company has been authorized to pay essential suppliers and logistics providers for goods and services provided before and after the company's court filings; continue pay and benefits for employees and retirees (though the amount of non-qualified pension for some executive retirees may be affected); and respect operating and financing agreements with GMAC, supporting continued wholesale financing for dealers and retail financing for customers.
Moving forward, General Motors has also reaffirmed its commitment to improve the fuel efficiency of its vehicle fleet, meet or exceed new federal fuel economy and emissions regulations, and push ahead with advanced propulsion technology. GM claims to remain on target to launch the Chevrolet Volt extended-range electric vehicle in 2010, expects to have 14 hybrid models in production by 2012, and promises 65 percent of its vehicles will be alternative-fuel capable by 2014.
"The New GM will become a long-term global leader in the development of fuel-efficient and advanced-technology vehicles," said Henderson. "In doing so, the New GM will contribute to the development of advanced engineering and manufacturing capabilities in the United States, which are critical to the future of the U.S. economy."
Meanwhile, if you own a General Motors vehicle (or even a Chrysler vehicle) and are concerned about being left without recourse from the company for product defects, personal injury, or "lemon" claims, you may want to check out the "Auto Crisis Hub" at Consumer Reports, which addresses many of the most common questions and concerns about GM's (and Chrysler's) bankruptcy, answering such questions as "What if my dealer closes?" "What if my car brand is discontinued?" and "Will parts and service be available?"
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