GM emerges from bankruptcy
The new General Motors arose on Friday as lawyers finished an all-night paperwork session transferring the bulk of the automaker's assets to a company controlled by the US government.business Updated: Jul 10, 2009 19:12 IST
The new General Motors arose on Friday as lawyers finished an all-night paperwork session transferring the bulk of the automaker's assets to a company controlled by the US government. Once the world's largest and most powerful automaker, new GM is now cleansed of massive debt and burdensome contracts that would have sunk it without federal loans.
But the new GM also emerges amidst the worst sales slump in a quarter-century.
The massive transfer of factories, money and intellectual property was completed about 6:30 am EDT (1030 GMT), according to a person briefed on the situation, clearing the way for a smaller and faster company better equipped to compete in the brutally tough global automotive market.
The person, who asked to remain anonymous because the deal wasn't announced officially, said the signing meant the new GM had emerged from bankruptcy. The person said lawyers spent the night signing a 2-foot (0.6-meter) high pile of documents clearing the way for the asset sale to the new company.
One bankruptcy expert called GM's 40-day case the fastest ever for a company of its size.
Spurred on by the Obama administration's support, the bankruptcy process was two day's faster than crosstown rival Chrysler Group LLC's 42-day timeframe.
GM's warp-speed emergence from bankruptcy is expected to be announced by CEO Fritz Henderson and new Chairman Edward Whitacre Jr at a news conference at the company's Detroit headquarters. Henderson is expected to announce details of the plan to make new GM profitable again. The troubled automaker has lost more than $80 billion in the past four years.
Henderson is expected to announce that GM will cut another 4,000 white-collar jobs, including 450 top executives. The company still employs 88,000 people in the US and 235,000 worldwide. He also will describe how GM will streamline its bureaucratic management structure to become profitable again. GM has said it will be able to make money even if the US auto market stays at a depressed level of 10 million to 10.5 million vehicles sold. Yet despite massive cost reductions, experts say GM must produce vehicles that people want to buy, and change its image to one on the cutting edge of efficiency and quality.
"It is the smaller, leaner, tougher, better cost-focused GM," said George Magliano, an automotive analyst with the consulting firm IHS Global Insight. "But they still have to deal with the problems that they faced longer-term."
Rep. Gary Peters, whose Michigan district is home to three GM factories, said the company's emergence signals a new era for the domestic auto industry and the thousands of people it employs. "With bankruptcy in the rearview mirror, US auto companies will even more aggressively pursue new technologies, become more globally competitive," he said. "Decades from now, our nation will be glad we did not let a global credit crisis put an end to the American automobile."
"I'm very much looking forward to a point where we're operating in clear air, and the name of the company not being associated with bankruptcy and loans and these things," said Mark LaNeve, GM's North American marketing chief.
GM ranked as the top global automaker in terms of sales for 77 years before Japan's Toyota Motor Corp. snatched its crown in 2008. The company sold nearly 8.4 million cars and trucks around the world in 2008, falling short of Toyota's nearly 9 million. Once the largest corporation in America, GM held the top spot in the Fortune 500 ranking for 20 years before being pushed out of the top spot in 1973 by Exxon Mobil Corp. It reclaimed No. 1 status in 1985 and held it for another 15 years.
Experts say GM's success will depend largely on its ability to persuade consumers that it's a different company, one that builds cars that will equal or outlast Japanese models. To illustrate the change, GM is considering a new name.
Turning a profit will not be easy. GM has piled up losses and survives only because it expects to receive $50 billion in US government loans. Without the loans, its executives have said the company would have been sold off in pieces.
The Obama administration has said it does not plan to interfere with day-to-day operations, though it ousted ex-CEO Rick Wagoner and has been involved in picking the new company's board. In addition to the US government's controlling interest, the United Auto Workers union gets a 17.5 percent stake of the company through its retiree health care trust, and the Canadian government will control 11.7 percent. The remaining shares went to bondholders of the old company.
The parts of GM not moving to the new company will become part of "old GM," a collsetll .