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Archive for May, 2009

General Motors Restructuring Will Require a Chapter 11 Bankruptcy Filing and a 363 Sale

Obama Administration officials claim that a New GM will now have far less debt and a "world class" balance sheet.

by on May.31, 2009

GM Renaissance Center in Detroit

"Meaningful sacrifice" now includes U.S. taxpayers.

Senior officials in President Obama’s administration confirmed tonight that General Motors will file for bankruptcy tomorrow and proceed with a sale of its productive assets to a New GM, which should emerge from court protection in “60 to 90 days.”

The latest plan reduces GM’s liabilities by well over 50%, but gives taxpayers a 60% share of a once proud and dominant automaker that controlled half of the U.S. market and was the largest automaker in the world. Those times now seem long ago and far way. GM lost $6 billion in the first quarter of 2009 and consumed $10 billion in cash. All told, GM has lost more than $87 billion in the last five years.

The strategy for a New GM is consistent with President Obama’s direction that he laid out in a speech on March 30, 2009, which required GM to rework its business plan, accelerate its operational restructuring and make far greater reductions in its outstanding liabilities.

In the interim, administration officials said General Motors has developed such a plan and has already begun to make progress toward its achievement.

GM has also secured commitments of “meaningful sacrifice” from all of its major stakeholder groups, concessions that are sufficient for The Auto Task Force at the U.S. Treasury Department to allow GM to move forward. As a result, the President has deemed GM’s latest plan “viable.” So Treasury will be making available about $30 billion of additional federal assistance to support GM’s restructuring plan on top of the $20 billion of taxpayer support already supplied.

The Sequel to Chrysler

GM’s restructuringplan is a larger, more complicated version of the Chrysler reorganization that is now winding down in a Federal bankruptcy court in New York City, where a positive ruling on its sale to Fiat is expected tomorrow. Like Chrysler, GM will use Section 363 of the U.S. Bankruptcy Code to eliminate impediments to its successful re-launch.

The “New GM” will purchase substantially all of the assets of the old insolvent GM needed to implement its business plan when it emerges out of a Chapter 11 filing. A crucial part of the plan is the the U.S. Government relinquishing the majority of its loans to GM.

Treasury is also prepared to provide approximately $30.1 billion of financing to support GM through an expedited Chapter 11 proceeding and transition New GM through its restructuring plan. In exchange for the $20 billion already committed by the U.S. Treasury and the new injection of $30.1 billion, the U.S. government will receive approximately $8.8 billion in debt and preferred stock in New GM as previously stated, and approximately 60% of the equity of the New GM. The U.S. Treasury will also have the right to appoint the initial directors in New GM other than the one that will be selected by the VEBA and the one from the Canadian government.

Canada Supports

The Governments of Canada and Ontario will lend $9.5 billion to GM and New GM. They will receive about $1.7 billion in debt and preferred stock, and approximately 12% of the equity of the New GM. Based on its “substantial financial contribution,” the Canadian government will also have the right to select one initial director to the board.

This means a majority of New GM board members will be , well, new.  Since managements serve at the discretion of the board, more senior executive changes — beyond the resignation of now former Chairman Rick Wagoner– will likely be coming. 

Treasury as Reluctant Shareholder

Administration officials were adamant that the government is now a “reluctant shareholder” and will sell its stake as soon as practical; and that GM can succeed at the current annual sales rate of under 10 million units in the U.S. No further government support is contemplated, they insisted.

As a result of this restructuring, GM lowers its break even point to a 10 million annual vehicle sales rate (SAAR). Before the restructuring, GM’s break even point was in excess of 16 million annual car sales.

Obama administration officials also emphasized that the UAW made important concessions on compensation and retiree health care that will help save jobs for active employees, as well as preserve the pensions and health care  benefits for retirees. The GM qualified pension plans for both hourly and salaried employees will be transferred to the New GM as part of the purchase process.

“In virtually every respect, the concessions that the UAW agreed to are more aggressive than what the Bush Administration originally demanded in its loan agreement with GM,” said a senior official.

UAW Concessions

The UAW’s existing VEBA agreement where GM previously owed $20 billion, now will be funded  with a $2.5 billion note,  payable in three installments ending in 2017 and $6.5 billion  worth of  9% perpetual preferred stock. The VEBA will also receive 17.5% of the equity of New GM and warrants to purchase an additional 2.5% of the company. Whether the UAW can continue to maintain health care at current levels is questionable.

The VEBA will have the right to select one independent director and will have no right to vote its shares or other governance rights.

Bondholders Have No Choice

Bondholders representing at least 54% of GM’s unsecured bonds have agreed to exchange their portion of GM’s $27 billion in unsecured debt for their pro-rata share of 10% of the equity of new GM, plus warrants for an additional 15% of the New GM. The bankruptcy process will be used to impose this deal for those bondholders and other unsecured creditors that failed to accept or did not participate in the offer.

GM will announce that it will close 11 plants and idle another 3 plants. As we have previously reported, New GM will also build a new small car in an idled UAW factory. This will increase the share of GM’s U.S. production for U.S. sale from its current level of about 66% to more than 70%. The UAW successfully waged a public campaign by lobbying Congress  to change GM’s plans to bring in small cars from Asia. Importing cars from Korea, China or Japan – all closed markets  to U.S. autos – with taxpayer dollars is politically controversial, to understate the issue that the  Obama Administration has now defused for the moment.

Customers, Employees, Suppliers

GM will continue to honor consumer warranties. Last week, Treasury made available $361 million in funds under the Warranty Support Program to GM to provide “a backstop on the orderly payment of warranties for cars sold during the restructuring.”

Administration officials said that from an operating perspective, the day after tomorrows’ filing will not be materially different from today. Employees will get paid salary, wages and ordinary benefits. Assuming the sale moves forward as predicted, Pension Plan and VEBA funding will be transferred to New GM. As with Chrysler, GM will seek authority at its “first day” bankruptcy hearing to continue to pay suppliers. In addition, Treasury’s Supplier Support Program will continue to operate.

GM will also seek authority at its “first day” hearing to continue to honor its dealer incentives for those dealers who are expected to continue to be part of GM’s distribution network going forward. Fired dealers will be offered an agreement to orderly wind down their operations during the next 18 months.

GM Announces U.S. Treasury “Satisfied” with Bondholder Support

More than half of bondholders exchanging debt for equity will allow a bankruptcy to proceed in a timely manner.

by on May.31, 2009

General Motors has just announced that the U.S. Department of the Treasury has informed the company that the support of more than 54% of the bondholders allows GM to proceed with the so-called 363 Sale Proposal as part of a bankruptcy filing that is expected tomorrow.

According to the White House, President Obama will speak on the GM matter at approximately 11:55 a.m. EDT.  Fritiz Henderson, CEO of GM,  will address media separately from New York following the President, beginning at approximately 12:15 p.m. EDT.

With its global headquarters in Detroit, GM employs 235,000 people in every major region of the world, and sells and services vehicles in some 140 countries. In 2008, GM sold 8.35 million cars and trucks globally under the following brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Hummer, Opel, Pontiac, Saab, Saturn, Vauxhall and Wuling. GM’s largest national market is the United States, followed by China, Brazil, the United Kingdom, Canada, Russia and Germany.

Breaking News: the White House Speaks on GM

Obama Administration briefing planned for this evening.

by on May.31, 2009

TheDetroitBureau.com will have the latest, inside update on the seemingly imminent GM bankruptcy, with a posting scheduled for 10 PM EDT tonight.

TheDetroitBureau.com will have the latest, inside update on the seemingly imminent GM bankruptcy, with a posting scheduled for 10 PM EDT tonight.

With the clock ticking down the hours until an expected General Motors bankruptcy, the White House will provide a preview of what’s to come, on Monday, during a Sunday evening background briefing. 

TheDetroitBureau.com will be there and have the inside story at 10 PM EDT, tonight.  Make sure to check back in a few hours for that breaking news.

General Motors at the Eleventh Hour

Once unthinkable, bankruptcy filing now seems inescapable.

by on May.31, 2009

Ex GM Chairman Rick Wagoner, center, Retiring GM Vice Chairmen Bob Lutz, left, and CEO Fritz Henderson

Even a bankruptcy filing does not guarantee GM's survival.

While neither General Motors Corporation nor the U.S. Treasury Department are commenting on events of this weekend, it appears that General Motors is still heading towards declaring bankruptcy on Monday, one of the only alternatives left open in its bid for survival. Even a bankruptcy filing does not guarantee its survival.

Nonetheless, the company has completed several more steps in its restructuring, including a tentative agreement to sell a majority stake in Opel, thereby obtaining German government financial aid, and getting more bondholders than previously to accept equity for debt.

GM’s Board of Directors has been meeting to discuss a Chapter 11 filing, as well as the response to the government’s latest proposal to debt-holders, who were given until 5 PM Saturday to either swap equity for a stake in a restructured GM or take their chances in court.

Subscribe to TheDetroitBureau.comGM spokesman Tom Wilkinson said the automaker “doesn’t discuss the actions of its board,” but he confirmed that CEO Fritz Henderson is planning to hold a news conference “after the president speaks.” President Barack Obama is expected to make a statement about the ailing automaker on Monday morning before departing on a trip to the mid-east to try and broker a deal that would end a bankrupt peace process.   (more…)

Magna and Russians Land Opel

Supplier was favorite of Germans and GM.

by on May.30, 2009

What role Opel will now play in GM's effort to form a truly global empire is uncertain.

What role Opel will now play in GM's effort to form a truly global empire is uncertain.

With weakened U.S. auto giant General Motors now coming down to the wire with an anticipated bankruptcy filing on Monday, the automaker has agreed to sell a majority stake in its ailing European Opel subsidiary to a consortium led by Canadian super-supplier Magna International.

The deal came hours after the other bidder in the battle for Opel, Italian automaker Fiat SpA, decided to boycott a meeting with German government leaders and others involved in the Opel rescue effort.  The government had pressured GM to agree to the sale before it would approve a bridge loan worth $2.1 billion.  The Germans will also provide another $420 million in short-term assistance, announced Finance Minister Peer Steinbrueck, to keep Opel running while the details of the sale are finalized.

When GM first announced it would need assistance to save Opel, it said it would be willing to relinquish a minority stake in the critical subsidiary.  But it later acknowledged it would be willing to become a minority shareholder, and the final deal will give Magna 20% of Opel and GM’s other European assets, while the Russian Sberbank will acquire another 35%, the same share remaining for GM.  Opel employees will control a 10% stake.

Subscribe to TheDetroitBureau.com“Opel has been given prospects for the future,” said German Chancellor Angela Merkel after the deal was completed. “Now the work for Opel and for Magna … really begins.”  Merkel had repeatedly said that the German government was neither interested nor willing to take a stake of its own in Opel – unlike the approach taken by the Obama Administration, which expects to wind up with 70% of the European unit’s parent, General Motors. (more…)

Leno To Be Lauded

Distinguished car collector also has some TV experience.

by on May.29, 2009

What makes Jay run - or drive - could it be keeping up his incredible car collection?

What makes Jay run - or drive - could it be keeping up his incredible car collection?

Like most celebrities, Jay Leno has learned to smile politely and pen a quick autograph, but if you want to really get his attention, ask him about his car collection.

The lantern-jawed comedian’s vast assemblage fills two hangars at the Burbank Airport and the new home he’s building, in Orange County, has a garage as large as some corporate office buildings.  So, while the 59-year-old Leno may be giving up his seat on the set of the Tonight Show with this evening’s special farewell, he’ll likely only spend more time tinkering on a collection that includes everything from Duesenbergs to Lamborghinis to a jet-powered motorcycle and a tank-engined 30-foot hot rod.

A regular – and repeat winner – at tony events like the annual Pebble Beach Concours d’Elegance, the NBC host has gotten an offer he can’t refuse.  Leno will receive the “La Bella Macchina’ award at the 24thAnnual Italian Celebration of Style.  It’s part of the Concorso Italiano, which helps kick off the “Pebble Beach weekend,” which draws some of the world’s top cars and collectors.

“Jay is the international face of the ultimate car guy and has been an enthusiastic ambassador for the hobby for more than 30 years,” says Concorso owner, Tom McDowell. “Jay’s eclectic taste knows no boundaries, other than making sure it has four wheels and a great history. He’s a hands-on, passionate guy who’s not afraid to get a little dirt under his fingernails and he has everything we look for in an honoree.  He’s the car guy’s car guy.” (more…)

GM President and CEO Fritz Henderson to Hold Media Briefing Mid-day Monday

It is likely that he will announce that GM will seek protection under Chapter 11 of the U.S. Bankruptcy code.

by on May.29, 2009

A new chapter in GM's history starts Monday.

A new "chapter" in GM's history starts Monday.

General Motors President and CEO Fritz Henderson will host a press conference on Monday, June 1. The conference will be around mid-day at the GM Building, 767 Fifth Avenue, in New York.

It is likely that Henderson will announce that GM will seek protection under Chapter 11 of the U.S. Bankruptcy code.

As we reported previously, GM’s exchange offers of debt-for-equity for $27.2 billion of its unsecured public notes expired on May 26, 2009, and therefore  it will not meet the requirements  imposed by the Treasury Department for a viable company under its restructuring plan. GM’s Board of Directors is now discussing next steps. Only 15% of Bondholders agreed to that deal, which would have given them 10% of the company.

The U.S. Treasury then extended and modified the offering to objecting bondholders, saying accept the 10% stake now in a reorganized GM as originally proposed, and eventually another 15% of the new company will be offered by way of stock warrants.

The GM reorganization that Treasury is dictating as the largest debtholder involves the sale of substantially all of GM’s productive assets under Section 363(b) of the U.S. Bankruptcy Code.  This would allow a “New GM” to emerge with a healthy balance sheet, while the Old General Motors Corporation is dissolved and its creditors paid off from what little remains.

The U.S. Treasury’s proposal expires at 5:00 pm EDT, Saturday, May 30, 2009. The new Treasury deal also requires “statements of support satisfactory to the U.S. Treasury” indicating that bondholders will not oppose the so-called 363 bankruptcy sale. If bondholders do not go along,  Treasury says it will not support even a 10% payoff.

Subscribe to TheDetroitBureau.comThe Treasury-revised deal is clearly designed to head off bondholder objections to a GM reorganization, which will help streamline a bankruptcy filing that is now coming  next week. It is vital to GM’s chances for survival that it emerge as quickly as possible from receivership. Sales have plummeted by almost half this year as it became clear that GM was insolvent and the few car buyers that remain in the depressed global markets went elsewhere.

For the third day now Chrysler bondholders are arguing in U.S. Bankruptcy Court in New York against a similar reorganization proposal and 363 sale of  its productive assets to Fiat, while Old Chrysler LLC is dissolved and bondholders and other debtors divide the little that’s left.

More than 300 objections to the Chrysler sale have been filed by creditors and bondholders who would rather see a complete dissolution and sale of the company, based on their highly dubious proposition that in a depressed auto market they would get more money from selling everything and grow fatter  — like vultures picking at a corpse.

There are no buyers out there for automotive assets right now, and bondholders prove that very proposition by refusing to buy into the reorganized company themselves by accepting equity for debt.  Chrysler, too, is saddled with plummeting sales, making its own quick emergence from bankruptcy vital to its survival. Whether common sense prevails at Chrysler — or GM – remains to be seen.

Under the GM reorganization now proposed, U.S. taxpayers would own 72.5% of New GM.

UAW Gains in Small Car Fight

Union to build GM’s new subcompact, and could see some shuttered plants re-open.

by on May.29, 2009

GM spent years debating whether to build a U.S. version of the Asian Chevrolet Spark, shown here. Concessions from the UAW now will make it possible. GM also will keep several shuttered assembly lines mothballed, rather than closing them permanently.

GM spent years debating whether to build a U.S. version of the Asian Chevrolet Spark, shown here. Concessions from the UAW now will make it possible. GM also will keep several shuttered assembly lines mothballed, rather than closing them permanently.

The United Auto Workers has used its residual clout to force General Motors Corp. to build a new class of small, so-called “B-” class subcompact cars in the United States.

UAW president Ron Gettelfinger said the union now has a firm commitment from General Motors to build a new small car in the U.S., instead of China or South Korea, as had been planned. The UAW had objected to GM’s plans, both publicly to Congress, and privately to the President Barack Obama’s Auto Task Force, which is now the decisive voice shaping auto policy.

“Small cars represent one of the fastest-growing segments in both the U.S. and around the world,” said Fritz Henderson, General Motors President and CEO as GM confirmed the new small car will indeed by built in the U.S.  “We believe this car will be a winner with our current and future customers in the U.S.,” Henderson added.

The conventional wisdom has long held that American manufacturers cannot make money on small cars, especially if they are built in the U.S., where labor rates and productivity have been non-competitive with foreign, and especially Asian manufacturers.  But the numerous concessions made by the union, in recent years, and especially recent givebacks meant to turn the domestic industry around, have changed the equation.

Subscribe to TheDetroitBureau.com“There is absolutely no reason “B” and “A” class cars can’t be built right here,” said Gettelfinger, during a press conference at UAW headquarters, in Detroit. “There is no reason for these companies not to build small car is this country and we’re going to remind them of it every day,” he said. (more…)

UAW Ratifies Revised GM Contract

Modifications to the GM-UAW 2007 National Labor Agreement are said to eliminate the competitive gap with import plants.

by on May.29, 2009

UAW President Ron Gettelfinger

The modified agreement includes the cost and cash savings.

GM employees represented by the United Auto Workers Union have ratified the modifications to their National Labor Agreement. The amended agreement covers approximately 54,000 hourly employees located in 46 U.S. facilities.

“The leadership demonstrated by UAW president Ron Gettelfinger and UAW vice president Cal Rapson, and the hard work from the members of the GM and UAW negotiating teams, resulted in an innovative agreement that will enable GM to be fully competitive and has eliminated the gap with our competitors,” said Diana Tremblay, vice president of GM’s Labor Relations.

“We very much appreciate the support of our employees and retirees. Their shared sacrifices will enable GM to become a stronger, more viable company that will continue to deliver world-class cars and trucks.”

The modified agreement includes the cost and cash savings in the current version of the GM Viability Plan. GM claims this will enable the company to eliminate the wage and benefit gap with its competitors. It also includes changes to the agreements regarding the Voluntary Employee Beneficiary Association (VEBA) trust for retiree healthcare. The agreement also confirms GM’s plan to use an idled assembly and stamping facility for future production of a compact/small car in the United States to meet future fuel efficiency regulations.

GM Now Says It Plans to Build a Small Car in U.S.

Bowing to UAW pressure over planned Asian imports, the company will reopen an as yet unnamed plant.

by on May.29, 2009

Chevrolet announced production plans for a new vehicle - the Chevrolet Spark - a fuel-efficient mini-car based on the Beat concept that will arrive in dealer showrooms in 2011.

Chevrolet announced production plans in January for a new vehicle - the Chevrolet Spark - a fuel-efficient mini-car based on the Beat concept that will arrive in dealer showrooms in 2011.

General Motors Corporation announced today that it plans to build a future small car in the United States in an idled UAW-GM plant. The unnamed small car will be built in an unnamed facility. 

By making the announcement today, GM is clearly bowing to pressure from the United Auto Workers Union, and also trying to smooth the way in Congress for a bankruptcy filing that is expected to come this Monday.

U.S. taxpayers will own 72.5% of a New GM. Importing cars from Korea, China or Japan – all closed markets  to U.S. autos – with taxpayer dollars is politically controversial, to understate the issue facing the Obama Administration.

The United Autoworkers Union on May 18 sent a letter to members of the U.S. Congress objecting to the centerpiece of GM’s Viability plan – closing 16 plants in the U.S. and importing vehicles from low-wage, non-unionized countries.

The factory closings were not new, they have been in various versions of the plan since GM went to the U.S. government for bridge loans late, last year, but in bringing the argument over the closings public, the union was attempting to prevent some of them through political pressure after apparently being shut down at the bargaining table.

The strategy worked. About 1,200 UAW jobs will be saved,  although more than 20,000 UAW jobs are eliminated in the current version of GM’s viability plan.

“Small cars represent one of the fastest growing segments in both the U.S. and around the world,” said Fritz Henderson, General Motors President and CEO. “We believe this car will be a winner with our current and future customers in the U.S.”     (more…)