02 June 2009

Kevin Krolicki and John Crawley 

Reuters

DETROIT/WASHINGTON: General Motors Corp. filed for bankruptcy on Monday, forcing the 100-year-old automaker once seen as a symbol of American economic might into a new and uncertain era of government ownership. The bankruptcy filing is the third-largest in US history and the largest ever in US manufacturing. The decision to push GM into a fast-track bankruptcy and provide $30 billion of additional taxpayer funds to restructure the automaker is a huge gamble for the Obama administration.

But in a sign of progress in the government's high-stakes effort, a bankruptcy judge approved the sale of substantially all of US automaker Chrysler's assets to a group led by Italy's Fiat Spa in an opinion filed late on Sunday.

Following the bankruptcy filing, GM shares were removed from the Dow Jones industrial average and delisted by the New York Stock Exchange as "no longer suitable for listing." Chrysler's bankruptcy, also financed by the US Treasury, has been widely seen as a test run for the much bigger and more complex reorganization of GM.

President Barack Obama hailed the decision, saying it "paves the way for the new Chrysler to successfully emerge from bankruptcy as a new, stronger, more competitive company for the future."   The administration's ambitious plan for GM is for a quick sale process that would allow a much smaller company to emerge from court protection in as little as 60 to 90 days.

In bankruptcy, GM will divide in two: a leaner "New GM" and "Old GM" which will include the parts of GM that will eventually be liquidated. GM said the split would be accomplished through what is called a Section 363 sale. The new GM assets would transfer to an entity owned by the US and Canadian governments, the UAW and GM's unsecured creditors.

GM said in court documents that the 363 sale has to be quick as the US Treasury has made clear it will finance New GM only if the sale transaction is approved by July 10. "Now the hard part begins, which is making GM and Chrysler competitive. If they don't do that, then we'll be doing this all over again in a few years," said Christopher Richter, an auto analyst at CLSA Asia-Pacific Markets in Tokyo.

"The immediate implication is that the companies are going to get smaller and so market share is up for grabs, which means that rivals like Toyota, Honda, Nissan and Hyundai are going to gain share." Since the start of the year, GM has been kept alive by US government funding as a White House-appointed task force vetted plans for a sweeping reorganization that will be undertaken with $50 billion in federal financing.

Copyright The Daily Star 2009.