General Motors files Chapter 11
General Motors Corp. (GM) has filed for relief under Chapter 11 of the U.S. Bankruptcy Code.
The filing will "accelerate" the company's "reinvention and create a leaner, stronger 'new GM,' positioned for a profitable, self-sustaining and competitive future," company officials said in an official statement released earlier today, June 1.
Pending approvals, the "new GM" will launch in 60 to 90 days "as a separate and independent company from the current GM, with two distinct advantages: it will be built from only GM's best brands and operations and it will be supported by a stronger balance sheet due to a significantly lower debt burden and operating cost structure than before."
The new company will incorporate terms of GM's recent agreements with the United Auto Workers and the Canadian Auto Workers and will be led by GM's current management team.
"Under its plan, GM will sell substantiatlly all of its global assets to the new GM." The company has asked the court "to approve a number of steps to protect current and new GM customers, ensure that its operations will continue uninterrupted during the court-supervised process, and provide for a smooth transition to the new GM."
According to company officials, the new GM will:
* Focus on four core brands in the U.S.: Cadillac, Chevrolet, Buick and GMC, "with fewer nameplates and a more competitive level of marketing support per brand."
* "Effectively close the competitive gap in active worker labor costs compared with transplant auto manufacturers."
* Utilize U.S. production capacity more efficiently, "while increasing over time the percentage of U.S. sales manufactured domestically."
* Pursue lower structural costs, enabling its North American unit to break even at a total industry volume of 10 million vehicles in the U.S. This rate is "substantially" below the 15 million to 17 million annual vehicle sales rates recorded from 1995 through 2007.
* Further reduce salaried employment in North America to 27,200 positions and reduce benefits for salaried and non-UAW hourly retirees.
Upon GM's sale of assets to the new company, the auto manufacturer's capital structure will be comprised of:
* Approximately $17 billion in total consolidated debt.
* Common equity, 60.8% of which will be owned by the U.S. Treasury; 11.7% of which will be owned by the Canadian and Ontario governments; 17.5% of which will be owned by the UAW's VEBA; and 10% which has been reserved for GM for the benefit of unsecured bondholders and other unsecured creditors.
In related news, GM has announced that its GM Europe division has reached an agreement with the German government for 1.5 billion euros in bridge financing.