General Motors prepares for historic bankruptcy
The century-old US industrial icon General Motors is expected to declare bankruptcy on Monday in what would be the most humiliating blow yet for the reeling US auto industry.business Updated: May 30, 2009 10:19 IST
The century-old US industrial icon General Motors is expected to declare bankruptcy on Monday in what would be the most humiliating blow yet for the reeling US auto industry.
Last-minute talks between GM, its creditors and the US government were running into the weekend. While there was no public admission of defeat, all sides appeared resigned that insolvency was inevitable.
GM would become the fourth-largest bankruptcy in US history and the largest manufacturer to ever seek court protection from its creditors. The biggest of Detroit's Big Three would be one of the largest casualties of the ongoing global economic crisis.
US President Barack Obama's administration, which is desperate to save as many car industry jobs as possible in the ongoing recession, is already hard at work on a reorganisation plan to present to the courts.
Its plan would effectively nationalise GM, transfer its best assets into a new entity and pump in billions of dollars more in government money to keep GM afloat.
GM's tens of thousands of creditors, owed a combined $27 billion, could help or hinder the process and possibly hold the key to whether GM survives reorganisation. The Treasury Department has offered bondholders a deal that could give them as much as 25 per cent of a reorganised GM if they back the administration's plan.
The White House hopes that GM, with bondholder support, can exit bankruptcy in 60-90 days, according to US media reports, though that timeline faces plenty of pitfalls.
A GM insolvency would mark the culmination of a decade-long slide from the top of the carmaking world. Just last year, on its 100th anniversary, GM lost its title as the world's largest auto manufacturer to Japan's Toyota.
The US auto industry is in tatters as a result of a deep recession that has stopped consumers from buying cars, coupled with the industry's own failure to modernise in the face of growing foreign competition in the last decade.
Vehicle sales in the US have plummeted more than 35 per cent since October, with domestic manufacturers hit harder than the offerings of smaller, more-fuel efficient Asian rivals like Toyota and Honda. GM's sales have fallen 45 per cent since January.
The industry collapse has already cost thousands of jobs, and GM plans to slash another 35,000 in the coming year as it continues scaling back operations. Its workforce could bottom out around 200,000. GM told 1,100 dealers earlier this month that their contracts won't be renewed.
GM has been fighting to avoid bankruptcy since November, when chief executives from Detroit's so-called Big Three - GM, Ford and Chrysler - first travelled to Washington to plead to Congress for emergency loans to stay afloat.
Former president George W Bush granted a $17.5-billion bailout to GM and Chrysler, giving each of them until the end of March to put their companies back on paths to viability.
As the March 31 deadline came and went, the newly inaugurated Obama gave both companies a final chance to prove their worth. The ultimatums appeared to only prolong the inevitable.
Chrysler, which was given only one extra month to restructure, filed for bankruptcy on April 30.
But Chrysler's own experience of bankruptcy gives GM some degree of optimism as it prepares for the same process. The company could emerge on the other side of bankruptcy next month - smaller but relatively unscathed and in an alliance with Italian carmaker Fiat.
"I think Chrysler certainly ... is a hopeful example for General Motors," White House spokesman Robert Gibbs said on Friday.