US automaker General Motors (GM) filed for Chapter 11 bankruptcy protection June 1. The proceedings will be handled by Judge Robert Gerber of the US Bankruptcy Court for the Southern District of New York—which is also overseeing the bankruptcy of rival automaker Chrysler Group. US President Barack Obama addressed concerns that the federal government’s large ownership stake in GM may hinder the company’s recovery saying:
What we are not doing—what I have no interest in doing—is running GM. GM will be run by a private board of directors and management team with a track record in American manufacturing that reflects a commitment to innovation and quality. They—and not the government—will call the shots and make the decisions about how to turn this company around. The federal government will refrain from exercising its rights as a shareholder in all but the most fundamental corporate decisions.
With its initial filing, GM said it has asked the court to approve measures that would “provide for a smooth transition to the New GM,” including allowing the US and Canadian governments to back existing GM warranties, allowing for $33 billion in additional Debtor-in-Possession financing to continue corporate operations, and ensuring that current GM employees become “part of the New GM.” GM President and CEO Fritz Henderson, who assumed control in March, said in an open letter that:
Today marks a defining moment in the reinvention of GM. In the face of an economic crisis that has caused enormous disruption in the auto industry, we have reached ground breaking agreements with the US Treasury, the Canadian and Ontario governments, and the UAW and CAW unions, and we have the support of a substantial portion of GM’s bondholders. These agreements allow us to launch a leaner, quicker, more customer-focused and cost-competitive New GM.
A senior Obama administration official, speaking on a conference call with reporters, said that the “we do not expect to be as speedy as Chrysler’s because GM is a far larger, far more complicated global company, but we do expect it to proceed, broadly speaking, along similar lines to the Chrysler one.” The United Auto Workers (UAW) had ratified a settlement agreement with GM on May 29 in an unsuccessful effort to meet the 60-day deadline for GM to restructure its debt announced by Obama in March. (Jurist, June 1)
One day earlier, a federal bankruptcy judge approved the sale of most of the assets currently held by Chrysler Group to Italian automaker Fiat S.p.A.. Judge Arthur Gonzáles of the New York’s Southern District Bankruptcy Court approved a plan that would transfer 55% of Chrysler to a UAW retiree trust and 20% to Fiat, with the US and Canadian governments each retaining a minority share. The UAW trust would take over responsibility for retiree health care in exchange for a larger ownership stake in the restructured Chrysler. A group of Indiana pension funds that acquired $42.5 million in secured Chrysler debt last year said they would appeal the decision because it is unfairly biased toward unsecured creditors like UAW. Chrysler filed for bankruptcy protection in April after failing to negotiate the return of $6.9 billion in debt for $2 billion in cash with secured debt holders.
Ford Motor Company, the other member of Detroit’s “Big Three” automakers, is seeking to regain lost market share while it’s domestic rivals are involved in bankruptcy proceedings. (Jurist, June 1)
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