Yes, it’s sad, but true…GM is history! This morning the Detroit giant has filed for Chapter 11 bankruptcy protection, allowing it to continue trading while it restructures. Chapter 11 is designed to provide a “breathing spell” during which a company can reorganize its operations to emerge as a potentially successful firm. In a Chapter 11 bankruptcy, a company does not go out of business, and its management is not necessarily replaced.
How did it happen? GM, which was the world’s largest carmaker for 77 years until Toyota took its place in 2007, lost about $88 billion since 2005 and even though in the past months it received more than $20 billion in loans from the US government, nothing could be done to save the giant who filed for bankruptcy today, June 1, 2009 at 8:00 am. This is the third largest bankruptcy in US history after Lehman Brothers bank (2008) and Worldcom (2002).
So, what next? A restructuring process will start with the company splitting in two. Profitable business like Cadillac, Chevrolet and some plants will form a ‘new GM’, while poorly performing ones, like Saturn or Hummer will either be discontinued or sold. The ‘new GM’ (we’re really curious how it’s going to look like) will be owned by the U.S. Treasury (60%), governments of Canada and Ontario (12%), bondholders (10%) and the Voluntary Employees’ Beneficiary Association (VEBA) with 17.5 percent. However, the Obama administration has clearly stated they intend to sell its GM holding as soon as that is practical.
Like we reported earlier today, Opel was saved, the German government helping Magna International acquire GM’s European arm (including Vauxhall). So far, we don’t know what’s going to happen to Saab, which was refused governmental aid earlier this year.
What will happen to GM workers? This is where it’s going to be really tough. As an important part of GM’s restructuring, around 21,000 factory jobs are scheduled to be cut by the end of 2010. Also, GM has already worked out a cost-saving deal with the UAW, including concessions on retiree health care.
So, that’s it, it’s over, GM is gone. Without doubt, this is a sad day, because when a company that ruled the auto industry for all these years goes bankrupt, you can’t help wondering what went wrong. However, we must hope the future will also bring good news for the reborn ‘new GM’.