Give us a chance, begs ‘New GM’

GENERAL Motors chief executive Fritz Henderson has asked US consumers to “give us another chance” after he and fellow directors plunged the company into one of the biggest Chapter 11 bankruptcies in US history.

He said he expected ‘New GM’ to emerge within 60 to 90 days as a leaner, financially stronger corporation.

The judge supervising the Chapter 11 process for GM immediately granted the company access to $US15 billion ($A18.5 billion) of new government capital needed to keep the company solvent during the next three months. A further $US18.3 billion is also available.

None of the company’s overseas affiliates and subsidiaries, like GM Holden in Australia, are directly affected by the decision to go into Chapter 11 bankruptcy.

Mr Henderson said that, under the Chapter 11 process, GM would hold a “section 363 sale” under the bankruptcy code in which all the good parts of GM, including GM Holden, would be sold to New GM.

The main thing that will be left in the GM shell will be about $US34 billion of debt.

The US government will emerge as the largest shareholder in New GM, with a stake of 60.8 per cent in return for its new $US33.3 billion investment. The Canadian and Ontario governments, which have contributed cash to the reconstruction, will hold 11.7 per cent, the union-managed retiree health fund VEBA will hold 17.5 per cent and the holders of unsecured debt in the old GM will have 10 per cent.

The shares of current shareholders will be worthless.

GM cars on the production line in Lansing, Michigan.

New GM will emerge with debts of $US17 billion, down from $US54.4 billion, and this will be a key element in the company’s ability to be competitive in a national market of 10 million units. The old GM struggled to be profitable in a market of 17 million units.

Other elements of the viability plan approved by the US treasury department include the closure of one third of GM’s US plants, retrenchment of a similar proportion of assembly line workers, the closure of the Pontiac and Saturn brands and the disenfranchising of thousands of dealers.

“New GM will be built from the strongest parts of the business. It will have less debt, a significantly stronger balance sheet and it will be able to increase investment in new technologies and weather difficult times,” Mr Henderson said.

He conceded that the unsecured creditors – who will swap up to $US24 billion of debts for a 10 per cent stake in New GM – were making a “very significant sacrifice”.

He said they would have a chance to make a recovery of that investment through their shares in New GM and a warrant to allow them to buy up to 15 per cent more of New GM.

“That way, they will be able to reduce the amount of damage they have sustained,” Mr Henderson said.

Mr Henderson said the company would continue to honor its new-vehicle warranties, and said directors of the New GM intended to offer customers “nothing less than best-in-class cars and trucks”.

“Give us another chance,” he said. “The GM that let too many of you down is history.

“The days when we would launch 15 new models expecting six to succeed and the rest to be just OK are gone. We will do it right. We will do it once.” Speaking after GM had filed its Chapter 11 papers at the court, President Obama reassured taxpayers that the financial support provided to GM was the best way to go in terms of social and industrial stability.

“The collapse of these companies (GM and Chrysler) would have been devastating for countless Americans, and done enormous damage to our economy beyond the auto industry,” he said at the White House.

“Understand we’re making these investments not because I want to spend the American people’s tax dollars, but because I want to protect them.

“Instead of taking so much stock in GM, we could have simply offered the company more loans. But for years GM has been buried under an unsustainable mountain of debt.

“So we are acting as reluctant shareholders – because that is the only way for GM to succeed.” But he stressed the US government did not want to run New GM.

“Our goal is to get GM back on its feet, take a hands-off approach, and get out quickly.”

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