New Era in Autos as GM Set for Bankruptcy
KEVIN HELLIKER NEIL KING JR. JOHN D. STOLL
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.
GM Prepares to File for Bankruptcy
1:16General Motors is set to file one of the biggest bankruptcies in history. (Courtesy of Fox.)
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.
From Blue Chip to Near Bankrupt
General Motors' shares closed at 75 cents a share on Friday. Take a look at its history.
The GM Bankruptcy
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.
But there is a rosy scenario, too, according to government and industry officials as well as other experts. Bankruptcy protection should allow GM to pull off one of the most expedient downsizings in the industry's 120-year history. Long hampered by laws, union strife and management practices that kept it from fast action to fix problems, GM plans to eliminate almost all of its debt, halve its U.S. brands, shutter 2,600 dealers and rewrite labor contracts almost overnight.
Emerging sometime this summer would be a GM with a cleaner balance sheet and slimmer operations than the company that has posted deep losses since 2005. GM has burned through $33.6 billion in cash the past four years. Under its restructuring plan, GM will shed more than $79 billion in debt, gain work-force savings worth billions of dollars a year, close unneeded facilities and reduce its dealer network by 40%.
New vehicles sit in the parking lot of Courtesy Chevrolet in Phoenix, Arizona in May.
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