GM's junk heap


NEW YORK (CNNMoney.com) -- General Motors filed for bankruptcy protection early Monday, a move once viewed as unthinkable that became inevitable after years of losses and market share declines which were capped by a dramatic plunge in sales in recent months.

In the end, even $19.4 billion in federal help wasn't enough to keep the nation's largest automaker out of bankruptcy. The government will pour another $30 billion into GM to fund operations during its reorganization.

Taxpayers will end up with a 60% stake in GM, with the union, its creditors and federal and provincial governments in Canada owning the remainder of the company.

Owners of GM cars should see little change as a result of the bankruptcy since warranties will still be honored. But there will be plenty of pain caused by the bankruptcy and the company's efforts to stem losses.

GM will shed its Pontiac, Saturn, Hummer and Saab brands and cut loose more than 2,000 of its 6,000 U.S. dealerships by next year. That could result in more than 100,000 additional job losses if those dealerships are forced to close.

0:00 /1:17American motorists sound off
A dozen facilities were identified for closure. Those plants employ most of the more than 20,000 U.S. workers GM intends to cut by the end of next year.

Assembly lines in Pontiac, Mich., which make full-size pickup trucks, will be closed later this year. A Wilmington, Del.-based plant that makes roadsters for the Pontiac and Saturn brands, will also close later this year.

Three parts distribution warehouses are set to close at the end of this year, while five engine plants and a stamping plant are due to close in 2010. An additional stamping plant is set to close in 2011.

Three more plants. including assembly lines in Spring Hill, Tenn., and Orion, Mich.,are set to be idled and put on stand by status in hopes for a rebound in sales that may never come.

Pain for retirees, investors
More than 650,000 retirees and their family members who depend on the company for health insurance will experience cutbacks in their coverage, although their pension benefits are unaffected for now.

Investors in $27 billion worth of GM bonds, including mutual funds and thousands of individual investors, will end up with new stock in a reorganized GM worth a fraction of their original investment.

Owners of current GM (GM, Fortune 500) shares, which closed at just 75 cents a share on Friday, will have their investments essentially wiped out.

Officials from the Obama administration and the United Auto Workers union both have said they hope to sell their stakes in GM as soon as possible, but it is likely that shares of the new GM will not be publicly traded for at least a year or two.

The bankruptcy filing led the New York Stock Exchange to announce it would no longer list GM shares after Monday.

It will also lead to the removal of GM as of June 8 from the Dow Jones industrial average, a distinction it has held since 1925. The company will be replaced in the Dow by technology giant Cisco Systems (CSCO, Fortune 500), Dow Jones said.

President Obama is due to address the nation later Monday to make the case why the bankruptcy and the additional federal help was necessary. CEO Fritz Henderson, who is expected to continue running the company, will speak in New York shortly after the president finishes his remarks.

GM and the Treasury Department were able to get key concessions from the unions and major bondholders in the past two weeks. Those deals paved the way for a cleaner bankruptcy process, one that a senior administration official said Sunday could allow GM to emerge from the bankruptcy process in only two to three months.

GM faced a deadline from the Treasury Department to come up with a plan to turnaround the company or file for bankruptcy by June 1. The company also owed its bondholders $1 billion in interest payments on June 1, money it did not have available to pay.

According to GM's bankruptcy filing , the company has assets of $82.3 billion, and liabilities of $172.8 billion. That would make GM the fourth largest U.S. bankruptcy on record, according to Bankruptcydata.com, just behind the 2002 bankruptcy of telecom WorldCom.

Three of the largest bankruptcies in history - GM, Wall Street investment bank Lehman Brothers and savings and loan Washington Mutual, have occurred in the last nine months.

Plans for a 'new' GM
GM will use the trip into bankruptcy court to shed the plants, dealerships, debt and other liabilities it can no longer afford. Emerging out of bankruptcy quickly will be a "new GM," made up of the four brands that GM will keep in the U.S. market -- Chevrolet, Cadillac, GMC and Buick -- as well as many of its more successful overseas operations.

This is the same process that Chrysler LLC used in its bankruptcy process. Chrysler filed for bankruptcy April 30, and the judge in that case approved the creation of a new company that will be run by Italian automaker Fiat in a ruling Sunday.

GM, being a larger, more complicated and global company than Chrysler, is not expected to have its valuable units exit bankruptcy quite as quickly, though.

The new GM will have only $17 billion in debt, rather than the $54.4 billion it owed as of March 31. The unions' new contracts with the company and GM's underfunded pension funds will stay with the new company.

But for the turnaround to be successful, both outside experts and company officials agree there needs to be improvement in U.S. auto sales, which have fallen to a 26-year low this year.

Sales plunge the final blow
GM has been hit harder than most of its competitors during the sales slump. The company's U.S. sales through April were down 45% from a year ago, compared to a 37% decline for the overall industry.

GM also faces tough competition from Toyota Motor (TM) and Ford Motor (F, Fortune 500), which are both in much stronger financial condition.

Even though Ford has reported years of losses as well, it had far more cash on hand than GM or Chrysler going into this crisis. The same is true for Toyota, which reported a loss in its recently completed fiscal year.

GM's decision to shed its weaker brands and dealers is expected to lead to further market share losses, which could result in the company giving up its long-time position as the largest automaker in terms of U.S. sales.

The company already lost the global sales title to Toyota last year, and it could soon fall behind Toyota and possibly Ford in the U.S. as well.

First Published: June 1, 2009: 8:03 AM ET

I heard this morning that at the peak of their power they employed over 600,000 people. Now they are talking about a workforce of 40,000 I hope Motor City can be resurrected

Oh yeah, why are you attacking the troops!?!

It's been a long time coming and they have no one to blame but themselves. However, I'm definitely keeping the workers in my prayers and I hope they get excellent severance packages.

I would be very interested to see what kind of cars they plan on producing.
Ultimately it's about who wants to buy their cars. I don't care for the current models, and you'll have to really really convince me to buy American cars again.

I wish them luck.

Imago said:

I thought you were Carrie till I took a closer look!

SupaFunkyOrgangrinderSexy said:

Lol.....good one.

SCNDLS said:

Yes. The stupid SUV culture and the "now" factor kept them from keeping pace with foreign competitors. Hopefully they could start bringing back American classics.

SupaFunkyOrgangrinderSexy said:

She hates this avatar

SupaFunkyOrgangrinderSexy said:

Trucks, vans and SUVs should be limitted to people that actually NEED them IMO.

Imago said:

When did you change your name to avatar?

SCNDLS said:

:nod;

Times, they are a changing ...

Imago said:

I also wish them the best, but I agree it'll be really interesting to see what they do with their lineup. At present, I'd only remotely be interested in the Saab brand or the Pontiac and Saturn roadsters specifically, all of which GM will be divesting of. Of the brands they plan to keep, Buicks and Chevys are , and I can only imagine the price point of Cadillac and the limited niche of GMC really restrict their market.

It's gonna be uphill.

I was just watching the movie "Who Killed the Electric Car?"

The film sets up GM as being either idiots or maybe even evil, as they pulled a successful (at least from a design standpoint) product from the market for mysterious reasons--actually took the cars away from the drivers who loved them.

Whether the film is biased or not, I will say that Toyota (makers of the Prius) are not filing for bankruptcy!

NDRU said:

My$teriou$ rea$on$.

Graycap23 said:

Indeed, but apparrently $hort$ighted reasons, too, considering the Prius' success, and GM's current condition
[Edited 6/1/09 12:10pm]

The Toyota Prius and GM's bankruptcy have nothing to do with each other.

Genesia said:

All I said was that the Prius is very successful and Toyota is NOT filing bankruptcy, so yourself!!

NDRU said:

Toyota's success is not a function of its offering the Prius. So again...

Genesia said:

not solely, but it's recent success is most certainly been lead by the Prius.

JerseyKRS said:

Okay, let me put it another way and see if people can grasp my meaning. Toyota's profitability has fuck-all to do with the Prius - or, in fact, any single vehicle it offers.

Genesia said:

oh praise ye Genesia for dumbing it down for us commoners!!!

a simple "what I mean to say" is a far nicer way to engage in discussion. It's not that we weren't "grasping" your meaning, you were the one not presenting it correctly.

I know we don't have much interaction, so don't think this is me trying to pot shot you or anything of the sort. It's just that your posts sometimes really come off as insulting, and no one, whether a message board jerk or not, deserves that IMO.

JerseyKRS said:

We share the same problem!

SupaFunkyOrgangrinderSexy said:

and there is nothing wrong with that. I frequently have to say "I'm sorry, what I'm stating isn't reflecting what I'm trying to convey" I had to do it with you on the gay thread not to long ago. There's nothing wrong with that, it's part of normal conversation IMO. It doesn't need to be accompanied with attitude though, how will anyone ever take your side of the story seriously if they feel insulted with your every post?

JerseyKRS said:

I just wanted her to know she is the same as the person she loves lecturing!

SupaFunkyOrgangrinderSexy said:

They couldn't keep pace with their foreign competitors because union labor costs added so much to the bottom line of every vehicle built that they had to sell at a loss in order to compete. And because they were forced by the government (under CAFE) to produce vehicles the American public didn't want to buy (even at a loss). So the proceeds from sales of cars people did want to buy - trucks and SUVs, to be specific - went to subsidize the building of cars they didn't want.

With a business model like that, how could they possibly come out ahead?

The cars GM produces now have to be fuel-efficent. They should have seen this years ago.

markpeg said:

They did. And GM does (and did) make plenty of fuel-efficient vehicles. Unfortunately for them, they could never beat the Japanese automakers in terms of quality, innovation or price for those vehicles because they were hamstrung by labor agreements the Japanese didn't have.

The only things people wanted to buy from GM were trucks and SUVs - those vehicles subsidized the building of the other things they had to have to satisfy the CAFE standards - but couldn't sell.

Product no one wants, at a price no one wants to pay. That is a business failure waiting to happen. And it has.

Am I the only one NOT feeling bad for them?

Vendetta1 said:

Nope.