GM's Bankruptcy Filing: Sad Day For Free Enterprise Or Opportunity To Re-Emerge Successfully? Pres. Obama Elaborates

MSNBC

The Top 10 U.S. Largest Bankruptcy Filings:

GM’s filing for Chapter 11 protection is the fourth-largest bankruptcy filing in U.S. history and the largest for a U.S. industrial company. Here are the top 10 U.S. bankruptcy filings, according to BankruptcyData.com, with the date of bankruptcy and the company’s assets:

1. Lehman Brothers Holdings Inc., Sept. 15, 2008, $691.06 billion

2. Washington Mutual Inc., Sept. 26, 2008, $327.91 billion

3. WorldCom Inc., July 21, 2002, $103.91 billion

4. General Motors Corp., June 1, 2009, $91.05 billion

5. Enron Corp., Dec. 2, 2001, $65.50 billion

6. Conseco Inc., Dec. 17, 2002, $61.39 billion

7. Chrysler LLC, April 30, 2009, $39.30 billion

8. Thornburg Mortgage Inc., May 1, 2009, $36.52 billion

9. Pacific Gas and Electric Co., April 6, 2001, $36.15 billion

10. Texaco Inc., April 12, 1987, $34.94 billion

WASHINGTON - General Motors filed for bankruptcy protection Monday, brought down by years of missteps and lost opportunities that dragged an American industrial icon to its knees.

President Barack Obama said the federal government would act as a reluctant caretaker of what was once the world's largest automaker and vowed a well-managed GM would emerge swiftly from the bankruptcy process as a profitable company.

“I recognize the importance of a viable auto industry,” Obama said at a press conference at the White House following GM’s bankruptcy filing. He said a collapse of GM would have been “devastating” for the U.S. economy and added that the government-led bankruptcy plan was “tough but also fair.”

The Obama administration plans to shrink the automaker to a sustainable size and give a majority ownership stake to the federal government — for the price tag of about $50 billion in taxpayer money.

GM’s bankruptcy filing is the fourth-largest in U.S. history and the largest for an industrial company. The company said it has $172.81 billion in debt and $82.29 billion in assets. The largest ever was Lehman Brothers Holdings Inc.’s Sept. 15 bankruptcy filing, followed by Washington Mutual Inc.’s bankruptcy filing 11 days later. WorldCom Inc.’s 2002 filing ranks third.

“The General Motors board of directors authorized the filing of a Chapter 11 case with regret that this path proved necessary despite the best efforts of so many,” a company statement said. “Today marks a new beginning for General Motors. ... The board is confident that this New GM can operate successfully in the intensely competitive U.S. market and around the world.”

Speaking at news conference in New York, where GM filed for Chapter 11 bankruptcy protection, GM's CEO Fritz Henderson said the new GM will be a leaner and quicker company that's more focused on its customers and its products.

Henderson said the new GM will be built from the strongest parts of its business, including its best brands and best products.

As it reorganizes, GM will rely on $30 billion of additional financial assistance from the Treasury Department and $9.5 billion from Canada. That’s on top of about $20 billion in taxpayer money GM already has received in the form of low-interest loans.

Warranties uninterrupted

The Detroit automaker said warranty coverage, service and customer support will continue uninterrupted, plants will continue to make cars and trucks, and employees and essential suppliers will continue to be paid. GMAC Financial Services said in a statement that it will continues to provide automotive financing to GM and Chrysler dealers and customers, and the federal Pension Benefit Guaranty Corp. said workers' pension plans remain safe.

GM will follow a similar course taken by smaller rival Chrysler LLC, which filed for Chapter 11 protection in April. A judge gave Chrysler approval to sell most of its assets to Italy’s Fiat, moving the U.S. automaker closer to a quick exit from court protection, possibly this week.

The plan is for the federal government to take a 60 percent ownership stake in the new GM. The Canadian government would take 12.5 percent, with the United Auto Workers getting a 17.5 percent share and unsecured bondholders receiving 10 percent. Existing GM shareholders are expected to be wiped out.

Albert Koch, who helped Kmart Corp. through its Chapter 11 reorganization, will serve as GM’s chief restructuring officer.

Administration officials said they expect the bankruptcy court process to last 60 to 90 days. If successful, GM will emerge with a smaller work force, fewer plants and a trimmed dealership network.

"Our goal is to help GM get back on its feet ... and get out quickly," Obama said of the federal government.

GM revealed Monday that it will permanently close nine more plants and idle three others.

The Pontiac, Mich., and Wilmington, Del., assembly plants will close this year, while plants in Spring Hill, Tenn., and Orion, Mich., will shut down production but remain on standby. One of the idled plants will be retooled to build a small car that GM had originally planned to build in China.

Seven powertrain and parts stamping plants will be closed starting in June 2010, while an additional stamping plant will be idled but remain in a standby capacity.

Chrysler Chapter 11

GM’s filing comes 32 days after a Chapter 11 filing by Chrysler, which also was hobbled by plunging sales of cars and trucks as the worst recession since the Great Depression intensified. Chrysler’s bankruptcy filing now ranks seventh with $39.3 billion in assets.

The sale to Fiat means Chrysler could be out of bankruptcy within the government’s original timeframe of 30 to 60 days. Chrysler’s plan gives a 55 percent stake of the new company to a union-run trust for retirees. Fiat gets a 20 percent stake to Fiat that can ultimately grow to 35 percent. The U.S. and Canadian governments get smaller pieces.

The third of the one-time Big Three, Ford Motor Co., has also been stung hard by the sales slump, but it avoided bankruptcy by mortgaging all of its assets in 2006 to borrow roughly $25 billion, giving it a financial cushion GM and Chrysler lacked.

Ford issued a statement Monday saying it "remains absolutely committed to continuing to make progress on our transformation plan without accessing emergency taxpayer assistance from the U.S. government."

GM will move forward with four core brands — Chevrolet, Cadillac, Buick and GMC — and cut four others. The company plans to cut 21,000 employees, about 34 percent of its work force, and reduce the number of dealers by 2,600. GM said it was finalizing a deal to sell Hummer, and plans for Saturn are expected to be announced within weeks.

“There is still plenty of pain to go around, but I’m confident this is far better than the alternative,” said Sen. Carl Levin, D-Mich. “It’s a new beginning, it’s a rebirth, it’s a new General Motors.”

Republicans disagreed. "Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability? It's time for the administration to fully explain what the exit strategy is to get the U.S. government out of the board room once and for all," said House Republican Leader John Boehner of Ohio.

GM, whose headquarters tower over downtown Detroit, said it believed the filing was not an acknowledgment of failure, but a necessary way to cleanse itself in an orderly fashion of problems and costs that have dogged it for decades.

GM shares fell as low as 27 cents in Monday morning trading, their lowest price in the company’s 100-year history. The News Corp. unit that oversees the Dow Jones industrial average said GM will be kicked out of the index on June 8 and be replaced by Cisco Systems Inc. The index’s rules prohibit it from including companies that have filed for bankruptcy.

The bankruptcy filing represents a dramatic downfall for GM, which was founded in 1908 by William C. Durant, who brought several car companies under one roof and developed a strategy of “a car for every purse and purpose.” Longtime leader Alfred P. Sloan built the global automaker into a corporate icon.

GM first sought help from the Bush administration and Congress last year as it was in the midst of being staggered by $30.9 billion in losses and seeing its cash resources shrink by more than $19 billion.

Consumers, worried about the economy and the future of GM, shied away from the company’s cars and trucks even after President George W. Bush promised loans and Obama followed through with billions more in assistance — plus a stiff set of new requirements GM was ordered to meet.

When GM failed to do so by a March 31 deadline, Obama forced out CEO Rick Wagoner and replaced him with Henderson.

Wagoner served at the helm since 2000 and was the face of GM when he first flew on a company jet to ask Congress for aid. After a firestorm of negative publicity, Wagoner rode in a hybrid Chevrolet Malibu from Detroit to Washington for a second set of withering questions before lawmakers.

(MSNBC reports on GM's Bankruptcy filing.)

Visit msnbc.com for Breaking News, World News, and News about the Economy

(President Obama elaborates on GM's Bankruptcy filing and explains the Government's role in this process.)

Visit msnbc.com for Breaking News, World News, and News about the Economy

View Larger Map

Sources: MSNBC, Bankruptcydata.com, Day Life, Reuters, Google Maps