GM plans for bankruptcy Monday
GM plans for bankruptcy Monday
General Motors Corp., the industrial behemoth that once defined the American corporation, plans to file for bankruptcy reorganization Monday, the Free Press learned today.
Crippled by the worst U.S. economy since the Great Depression after years of decline, the Detroit automaker will try to restructure itself in Chapter 11 with more government financing.
Today, GM unveiled a proposal aimed at winning debt holders’ support for its plan to create a new GM in bankruptcy out of its best parts and giving the first glimpse of what the new company could look like.
The new GM would have far less debt and be primarily owned by the U.S. government, the UAW’s health care trust and current GM bondholders.
It’s a far fall from 50 years ago, when the public debated whether to break up GM. With about half of the U.S. market, some wondered how other automakers could compete against GM’s Buick, Chevrolet, Cadillac, Oldsmobile, GMC and Pontiac brands.
Now, GM is alive only because of $19.4 billion in federal loans as it prepares to put its future in the hands of a judge.
The U.S. Treasury will provide at least $30 billion more to help GM restructure in bankruptcy, a new regulatory filing indicated. All but $8 billion of the total U.S. aid of about $50 billion would be swapped for an initial 72.5% stake in the new GM.
GM is hopeful a bankruptcy would be swift.
“Everybody would have an incentive to get in and out as quickly as possible,” Bob Lutz, GM vice chairman, told the Automotive Press Association in Detroit. “A Chapter 11 that lasted for months and months would be very damaging.”
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RenCen retailers are nervous about filing Chapter 11
Sales at Calumet Market & Spirits, a 30-year tenant in the Renaissance Center, have dropped by 50% over the past five years due to General Motors Corp.’s job cuts, owner Henry Isaac said today as word filtered out that GM plans to file for bankruptcy protection on Monday.
“The economy in Michigan and Detroit is bad to start with, and then when you are working in the building with GM and hearing the talk of bankruptcy … Everybody is worried about their job — from the janitor all the way up,” Isaac said.
On top of that, Warren Mayor Jim Fouts offered a what he called an unprecedented proposal to GM today to move its headquarters from Detroit’s RenCen to the GM Tech Center in Warren.
“If they move out of the building completely, that’s a disaster not just for me, but for every retailer here in the building,” Isaac said.
Isaac’s anxiety was typical as confirmation of GM’s plans to file for Chapter 11 bankruptcy swept across Michigan.
“It’s going to be painful, but pain is better than death,” said Wayne County Executive Robert Ficano. “But I think the shock and awe of bankruptcy has been lessened because of what has happened with Chrysler.”
Both Ficano and Michigan, Gov. Jennifer Granholm praised President Barack Obama’s administration for supporting the industry, saying the situation would be worse otherwise.
“I shudder shutter to think what would have happened if the Obama administration hadn’t insisted on maintaining a domestic auto industry,” Granholm said.
“The main pain of a GM bankruptcy,” she added, “will be on the families who depend on the automaker for wages and pensions.”
However, U.S. Rep. Pete Hoekstra, R-Mich., said he’s concerned about the federal government owning such a large stake of the automaker.
“I got nervous when they fired Wagoner,” he said of former CEO Rick Wagoner. “And I have some real questions about where we’re going to be in 12-18 months.”
Detroit City Council President Ken Cockrel Jr. said GM’s trouble underscores the need for the region to transform its economy.
“This is another signal that we’re truly in a new era and that no one or no company’s are immune,” Cockrel said. “We’ve got to diversify our economy.”
Detroit Mayor Dave Bing, in a statement issued by through a spokesman, said “The presumed GM bankruptcy would have a tremendously negative impact on our city from a tax, employment, and image standpoint.”
Workers and retirees worry most.
Hourly workers at UAW locals this week are voting on pay and benefit cuts as part of GM’s restructuring.
“Over the past several months, I think the U.S. autoworker has experienced every emotion that you could possible experience,” said Brian Fredline, president of UAW Local 602 in Lansing. “And now we are down to frustration and near despair, and at times that turns into anger.”
Still, Fredline said, 70% of the 3,000 members who voted at his local voted in favor of the modified agreement.
William Hanline, 60, of Decatur, Ala., isn’t sure whether GM or Delphi Corp. is going to pay his pension. Hanline retired from Delphi Corp.’s steering division on Jan. 1, but worked for GM in the 1980s and 1990s. Now, GM is to take back the division.
“Nobody is being held responsible for the condition that the company is in today, and that is what angers me,” Hanline said.