A new car company was born in the United States overnight.
Government Motors (GM) is now the nickname for General Motors whose historic bankruptcy at 10 pm Monday, Australian time, ended a proud 77 year history as the giant of the US and global car market.
In the end it was a giant whose end had been forecast many times, but which came at the hands of the current board and management, prodded by the Administration of President Barak Obama.
Its German and UK businesses, Opel and Vauxhall were ring-fenced to keep them out of collapse, while Saab in Sweden has been effectively separated from the failing parent.
Holden in Australia is still part of the business, as are subsidiaries and operations in countries like China and South Korea.
The US Government has already injected almost $US20 billion into GM, but America’s largest ever industrial bankruptcy happened anyway.
The plan is for the new company to emerge, sylph-like in August, majority owned by US taxpayers and with its liabilities cut by more than 50%.
New GM will get $US30.1 billion in bankruptcy financing from the government, making a huge $US50 billion in all and rivalling the amounts of government aid to bank of America and Citigroup, but well short of enfeebled mortgage giants, Fannie Mae and Freddie Mac and the failed insurer, AIG, which is the biggest basket case of all.
But GM is up there with the biggies from this credit crunch and global recession, not to mention record oil and petrol prices last year that drove a stake into the heart of GM’s business: big fuel chomping guzzlers called Sports Utility Vehicles, or SUV’s.
The Obama Administration indicated at the weekend that there will be no more money for GM after the injection.
The government will have a 60% equity stake in New GM, and 12% will be held by the Canadian government, which is lending $US9.5 billion to the company.
That makes $US60 billion in all in funding from the two Governments.
The filing, which GM executives said last year wouldn’t happen (old management though), ends a company that once made more than half the cars bought in America.
GM has run up losses of almost $US88 billion of losses since 2004.
According to GM’s plans, it intends to close 11 factories and idle another three.
It has said it wants to reopen one idled facility to build a new small car.
The company wants to cut its hourly workforce in the US to about 40,000 next year from 61,000 at the end of 2008.
In exchange for concessions, a United Auto Workers Union retiree healthcare trust will own 17.5% of the equity and unsecured bondholders 10% in the new GM.
The union and debtholders will also get warrants to buy more of GM once it emerges from bankruptcy and after certain milestones have been achieved.
It’s a big gamble, but Chrysler is now on its way to being run by Fiat, with money from the US Government to help recapitalise the new company.
Bloomberg reported that the US bankruptcy judge signed the order at 1.15 pm Sydney time Monday (11.15 pm Sunday, new York time).
"The carmaker is selling itself to an entity owned by Fiat, a union benefit trust, the U.S. Treasury and the Canadian government," Bloomberg reported.
The company will get $US2 billion in cash to distribute to secured lenders holding $US6.9 billion in loans.
"Fiat can walk away from the sale if it doesn’t close by June 15, with a one month extension for antitrust approvals.
"The company didn’t receive any other bids for its assets, attorneys said.
“Not one penny of value of the debtors’ assets is going to anyone other than lenders who deserve it, the judge wrote in the 47-page ruling.
" The U.S. and Canada, “have made the determination that it is in their respective national interests to save the automobile industry, in the same way that the U.S. Treasury concluded that it was in the national interest to protect financial institutions.”
Chrysler’s bankruptcy is being funded by $US4.9 billion in loans from the US and Canadian government which have also agreed to provide about $US8 billion in loans to the new company once it emerges from bankruptcy.
