GM to File Bankruptcy Or Where are Those Billions?
New Era in Autos as GM Set for Bankruptcy
DETROIT — General Motors Corp. will file for Chapter 11 bankruptcy early Monday, marking the humbling of an American icon that once dominated the global car industry and setting up a high-stakes gamble for U.S. taxpayers.
The question now facing 56,000 auto workers, 3,600 GM dealers and the Obama administration: Will it work?
The government, which will own a majority of the company, is wagering upwards of $30 billion that it can return GM to profitability, reversing a decades-long decline by shearing away liabilities and creating a freshly competitive car maker by summer’s end.
The reorganization faces myriad risks, ranging from legal challenges to the uncertainty of when consumer demand for new cars will rebound. In becoming GM’s new owner, the government is also entering largely unexplored terrain filled with political minefields, notably the possibility of meddling by Congress in the company’s daily operations and business plans.
Even if a new GM emerges swiftly from bankruptcy, the administration will face a thicket of challenges, including closing more than a dozen factories and shedding the Pontiac, Saturn, Saab and Hummer brands. Shepherding these unwanted parts of GM — the so-called Old GM — through liquidation in court could take years, with potential extra costs to taxpayers if the process bogs down.
And unknown is how the cost of restructuring both GM and Chrysler LLC would have compared with the cost of letting both companies fail in terms of lost wages, disruptions among car-parts makers and the broader economic fallout. Chrysler, which could emerge from bankruptcy as soon as Monday, will be controlled by Italy’s Fiat SpA under its own risky revamping.
In a potential sign of turbulence, secured lenders to GM, which are owed about $6 billion, expect the government to pay their claims at face value during court proceedings, but only if they release their claims against certain GM property, such as inventory, machinery and receivables. This could open the lenders to later demands they pay back part of the loans, if the collateral is deemed less valuable than initially agreed upon.
Why wasn’t GM allowed to go bankrupt in the normal manner? Why did the Obama administration want control?
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