General Motors seen filing for bankruptcy Monday
Bondholders panel agrees to sweeter deal
General Motors Corp., the world’s largest automaker until its 77-year reign ended last year, plans to file for bankruptcy protection Monday and sell most of its assets to a new company, people familiar with the matter said.
The government’s road map for GM would erase most of its debt and, it is hoped, eventually bring the company out of bankruptcy protection leaner and stronger.
GM Vice Chairman Bob Lutz, while not confirming a bankruptcy filing, said the company would work to exit bankruptcy quickly, because consumers will be reluctant to buy vehicles from an automaker under court protection.
“We will come out of this rid of some of the historic legacy costs that have been dragging us down for the last 20 years or so,” he said at an Automotive Press Association luncheon in Detroit. “We will come out of it with an all new focus on product development.”
GM’s plans to file bankruptcy were reported by Bloomberg News, the Detroit Free Press and the Detroit News.
The U. S. Treasury will own 72.5 percent of the new GM; a union health care trust will have 17.5 percent; and 10 percent will go to the old GM to hand to creditors in the bankruptcy, according to a GM regulatory filing.
GM’s plans got a boost Thursday when a committee of bondholders agreed to a sweetened deal proposed by the U. S. government to erase the auto-maker’s unsecured debt in exchange for company stock.
The revised offer to the holders of $27 billion in unsecured GM bonds amounted to a take-it-or-leave-it ultimatum: Go along with the government auto task force’s proposal or be left holding the assets a new GM doesn’t want — ones with presumably little value at all. The government expects 35 percent of the bondholders to support the plan.
Another piece of GM’s financial puzzle is a revised labor contract with the United Auto Workers. For the deal to take effect, a majority of UAW members from GM plants around the country must approve it in voting this week.
Thursday, members of UAW Local 774 at the Town of Tonawanda engine plant, voting in the basement of the union hall on River Road, overwhelmingly endorsed the new agreement.
Shop chairman Bob Coleman reported that 86.5 percent of those voting approved the pact. More than 700 of the local’s approximately 1,000 members cast ballots.
“As of now, nationwide this is being approved,” Coleman said Thursday night.
UAW leaders had recommended their members vote for the deal. The UAW has called for results to be submitted to its Detroit headquarters no later than today.
GM’s Town of Tonawanda plant has 1,010 hourly workers, including about 360 on layoff. The deal contains concessions on retiree health care and as well as another buyout and early retirement offer.
George Palumbo, a Canisius College economist, said he could not guess as to how UAW members nationally might vote but added, “I can’t see how they would survive without amending the contract.”
Nallan Suresh, a University at Buffalo professor, said he expected the deal to be approved, given the dire situation GM faces.
“I get the sense the UAW has to go along with these concessions,” said Suresh, professor and chairman of operations management and strategy at UB’s School of Management.
GM is preparing to announce 14 manufacturing plants that it intends to shut down by the end of next year as part of an overhaul of its operations. The list is expected to be revealed Monday.
GM also intends to take back several former GM facilities that are now part of Delphi Corp. On Thursday, Sen. Charles E. Schumer, D-N. Y., called for Delphi to agree to take back the operations, including plants in Lockport and Rochester.
“We’re down to the wire,” Schumer said, adding that he believed the offer to Delphi was “about as generous as it’s going to be.”
“Delphi is considering it,” he said. “There are some investors that would have to come on board with it.”
The Lockport plant employs 2,100 people. Schumer said it would be “a shame” if a deal could not be reached. “GM is going to have a very rough time making cars without the Lockport plant,” he said.
As for GM’s Town of Tonawanda plant, Schumer expressed confidence about its outlook.
“It’s my understanding that the Tonawanda plant is one of the most efficient and best in terms of productivity,” he said. “I have not heard they are on the chopping block.”
GM is surviving on $19.4 billion in federal loans, and the U. S. Treasury will finance the trip through bankruptcy with about $30 billion more, GM said in a statement. The Canadian government was expected to provide an additional $9 billion, the Obama administration official said.
A GM bankruptcy is expected to take 60 to 90 days, compared with the 30 to 60 days estimated for Chrysler LLC, an administration official said.
GM seeks to rebuild around assets such as the Cadillac and Chevrolet brands.
The administration is optimistic about recovering federal money being invested in GM’s restructuring, an official said.
“The government wants to see its taxpayer dollars come back,” Lutz said. “They’ve got a lot invested in the company, and our plan is to pay it back, as rapidly as possible, and I think that’s the government’s plan, too. The U. S. government does not want to own automobile companies.”
The administration will provide “benevolent oversight” because it is investing billions to keep GM alive, Lutz said. He said he did not expect the government to dictate what kind of cars and trucks the company builds.
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