When Giants Fall ...
Is actually the name of an econblog off of which Alpha.Sources get a substantial amount of backlinks. However, it is also a fitting emblem on a day when the hitherto biggest automaker in the world (GM) finally, one is tempted to say, files for bankruptcy. Of course, it will not sink into the eternal wastebin of companies gone bust, but rather emerge as a "new" GM, significantly slimmer and with significantly more state capital (and ownership). 60% is the current number flying around concerning the stake of the US federal government whereas Canada will control 12% according to Bloomberg in exchange for a 9.5 billion loan.
General Motors Corp., the world’s largest automaker for 77 years, will file for bankruptcy today, and emerge with majority ownership by taxpayers and liabilities reduced by more than 50 percent, the U.S. government said. The “new GM” will get $30.1 billion in bankruptcy financing from the government, and the Treasury “does not anticipate providing any additional assistance” after that, the Obama administration said yesterday in a statement. The federal government will have a 60 percent equity stake in the retooled automaker, and 12 percent will be held by the Canadian government, which is lending $9.5 billion to the company
“Our objective is to make sure we’re limiting our involvement to the minimum necessary, and that we get out of those involvements as quickly as we can,” Treasury Secretary Timothy Geithner said today in Beijing. “We want to have a quick, clean exit as soon as conditions permit.” The filing, which GM executives said last year wouldn’t happen, marks the plunge of a company that once made more than half the cars bought in the U.S. The Detroit-based automaker became burdened by higher costs than competitors and a reliance on fuel-guzzling light trucks as gasoline prices rose. GM has been battered by almost $88 billion of losses since 2004.
Elliot Sloane, spokesman for an ad hoc bondholders committee, said investors representing about 54 percent of GM's bonds had agreed to exchange their unsecured bonds for a 10% stake in a newly restructured company, the Associated Press news agency reported. But it is still possible that dissident bondholders may mount legal challenges in the bankruptcy court.
Meanwhile, a US bankruptcy court judge in New York has approved the sale of fellow US carmaker Chrysler to a consortium including Italy's Fiat. The move, which is backed by both the US and Canadian governments, should enable the carmaker to exit bankruptcy protection in the near future. Under the terms of the deal, Fiat will control 20% of Chrysler, while 68% will be owned by a union trust, and the two governments will share 12%.
And finally, there is Reuters;
Since the start of the year, GM has been kept alive with U.S. government funding as a White House-appointed task force vetted plans for a sweeping reorganization that will be undertaken with $50 billion in government financing. By preparing to take a 60 percent stake in a reorganized GM, the Obama administration is gambling that the automaker can compete with the likes of Toyota Motor Corp after its debt is cut by half and its labor costs are slashed under a new contract with the United Auto Workers union. The governments of Canada and the province of Ontario agreed to provide another $9.5 billion to GM in a late addition to the plans for the bankruptcy that have been taking shape for weeks, U.S. officials said.
GM plans to close 11 U.S. facilities and idle another three plants. It has not provided an updated target for job cuts but had been looking to cut 21,000 factory jobs from the 54,000 UAW workers it now employs in the United States. The UAW would have a 17.5 percent stake in the "new GM." The Canadian government would own 12 percent stake and GM bondholders would get 10 percent.
Fritz Henderson, GM President & Chief Executive Officer will hold a press conference at 12.15 p.m. ET in which one would assume that more details are revealed. Of course, this was hardly surprising and one has the distinct feeling that the financial crisis was only the proverbial nudge which pushed GM into the abyss close to which the company had been situated for a long time due to a poor response to changing market dynamics. But don't take my word for it. Stories about GM's problems and potential demise, to a great extrent, preceded the financial crisis and this is thus not a surprise for anyone I'd imagine.