New York » General Motors filed for Chapter 11 bankruptcy protection Monday as part of the Obama administration's plan to shrink the automaker to a sustainable size and give a majority ownership stake to the federal government.
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 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," GM Chairman Kent Kresa said in a written statement. "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."
As it reorganizes, the fallen icon of American industry 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.
"Our agreement with the U.S. Treasury and the governments of Canada and Ontario will create a leaner, quicker more customer and completely product-focused company, one that's more cost competitive and has a competitive balance sheet," CEO Fritz Henderson said at a news conference in New York. "This new GM will be built from the strongest parts of our business, including our best brands and products."
The Detroit automaker said warranty coverage, service and customer support will continue uninterrupted, plants will continue to make cars and trucks, and essential suppliers and GM's 235,000 employees worldwide 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 April 30. A judge on Sunday 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.
GM shares fell as low as 27 cents in Monday morning trading, their lowest price in the company's 100-year history, but rebounded to rise 10 cents from Friday's close to 85 cents in afternoon trading. On June 8, Cisco Systems Inc. will replace GM in the Dow Jones industrial average, which excludes companies that have filed for bankruptcy.
The government's partial stake in GM comes on top of a far smaller ownership of Chrysler, as well as significant federal equity in banks, the AIG insurance giant and two mortgage industry titans -- all victims of an economic crisis unrivaled since the Great Depression.
But the president said the actions were part of a "viable, achievable plan that will give this iconic company a chance to rise again."
The president said the government would refrain from playing a management role in all but the most critical areas.
"Our goal is to help GM get back on its feet ... and get out quickly," he said.
Henderson declined to offer a firm timeline for how long it would take the government to sell its stake in GM, but he indicated it could take some time.
"These are a substantial block of shares," Henderson said. "This is a question of years, not months."
GM said it expects the bankruptcy court process to last 60 to 90 days. If successful, GM will emerge as a leaner company with a smaller work force, fewer plants and a trimmed dealership network.
"We're confident that we will move fast," Henderson said. "Not with a sense of urgency. We're talking about pure unadulterated speed."
GM said 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, or GM's Janesville, Wis., plant that closed in April, 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.
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 its 6,100 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.
The third of the one-time Big Three, Ford Motor Co., has also been stung hard by plunging sales of cars and trucks, 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."
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 this year 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.
But that amounted to only a sideshow as the automaker's financial position worsened. Its revenues plunged almost 50 percent in the quarter ended March 30 and it racked up another $6 billion in losses.
The Henderson-led GM faced a government-imposed June 1 deadline to restructure, slash costs and modify contracts with its union and dealers. But meeting most of those demands, plus a late agreement by many bondholders to swap the $27 billion in debt they are owed for shares in a new GM, were not enough to prevent the court filing.
Some bondholders might still fight GM's reorganization plan, but the company and Treasury hope the 54 percent who supported the debt-for-equity offer will convince the judge that its a fair deal.
"There is no other sale, or other potential purchasers, present or on the horizon," Henderson said in an affidavit filed Monday in bankruptcy court. "The only other alternative is the liquidation of the debtors' assets that would substantially diminish the value of GM's business and assets, (and) throw hundreds of thousands of persons out of work and cause the termination of health benefits and jeopardize retirement benefits for current and former employees and their families."
It was an all-out sprint to Monday's filing, as GM quickly sought to nail down deals with its union, bondholders and sell off brands along with most of its Opel operations in Europe to appear in court with a near-complete plan to quickly emerge with a chance to become profitable.
The German government on Sunday agreed to lend GM's Opel unit $2.1 billion, a move necessary for Magna International Inc. and Russian-owned Sberbank to acquire 55 percent of the company.
In the U.S., the UAW's ratification of concessions, announced Friday, will save GM $1.3 billion per year. The new deal freezes wages, ends bonuses and eliminates some noncompetitive work rules.
It moves billions in retiree health care costs off GM's books. In exchange for its ownership stake, $6.5 billion of interest-bearing preferred shares, and a $2.5 billion note, the trust will take on responsibility for all health care costs for retirees starting next year. Higher health care costs alone accounted for a $1,500-per-car cost gap between GM and Japanese vehicles.
GM will offer buyouts and early retirement packages to all of its 62,000 hourly workers to shrink employment. The company also has about 29,000 white-collar employees, according to court documents. In contrast, GM employed 618,000 Americans in 1979, more than any other company.
GM earlier outlined a plan to cut about 1,100 of its dealers by the end of 2010. It also plans to shed about 500 dealerships that market the Saturn, Hummer and Saab brands.
A person familiar with GM's plans said the automaker has no plans to accelerate the dealership cuts that were already announced. The person spoke on condition of anonymity because the details have not been made public.
The person said dealerships that the company is planning to terminate began receiving wind-down agreements Monday. Those agreements, if dealers sign them, will allow targeted dealers to receive compensation and support from GM as they close down their franchises and sell off inventory.
But just cutting labor and overhead costs won't be enough to save the company. It also has been working to streamline its engineering and design, as well as standardize many parts so they can go into multiple models.
The once powerful GM earns a place in history as the largest U.S. industrial company to file for bankruptcy protection, and the fourth-largest company overall to do so based on its $82.29 billion in assets as of March 31.
Lehman Brothers Holdings Inc.'s Sept. 15 bankruptcy filing is the nation's largest with $691.1 billion in assets, and it likely served as a catalyst for GM and Chrysler's downfall, as it hastened the erosion of credit markets, making it impossible for GM to borrow money and difficult for consumers and dealers to finance new vehicles.
Washington Mutual Inc. and WorldCom Inc. are the second and third largest U.S. companies to file for bankruptcy protection.
AP Auto Writer Kimberly S. Johnson reported from Detroit. AP Auto Writer Tom Krisher in Detroit, AP Business Writer Harry R. Weber in Atlanta, AP Business Writer Vinnee Tong in New York, and Associated Press writers David Espo, Ken Thomas and Jim Kuhnhenn in Washington contributed to this report.
Some key events in General Motors' history:
Sept. 16, 1908 » General Motors Company founded by William C. Durant.
1909 » GM sells 25,000 cars and trucks.
1910 » Durant brings the Buick, Olds, Pontiac, Cadillac, Champion ignition, AC spark plug and other companies into GM. Sales rise 60 percent, but earnings lag. Durant is ousted by bankers as company sinks into debt.
1911 » Electric self-starter first appears on a Cadillac.
1916 » GM incorporated as General Motors Corp. Durant, after founding company that builds Chevrolets, regains control.
1917-19 » GM shifts most truck production to war effort.
1920 » Durant resigns, later files personal bankruptcy and dies running bowling alleys.
1920s » GM creates product policy aiming Buick, Pontiac, Chevrolet, Oldsmobile and Cadillac at five different groups of buyers.
1921 » GM accounts for 12 percent of U.S. car market.
1923 » Alfred P. Sloan named president and chief executive.
1925 » GM acquires Vauxhall Motors Ltd. of Great Britain.
1929 » GM acquires Adam Opel AG of Germany.
1937 » Violent sit-down strikes by GM hourly workers in Flint, Mich., shake company, lead to United Auto Workers representation.
1941 » GM market share grows to 41 percent.
1942 » Civilian auto production halted and plants turned to war effort.
1945-46 » Workers strike for 113 days.
1948 » First automobile fins unveiled, on a Cadillac.
1949 » After purchase of National City Lines of Los Angeles, GM accused of buying streetcar companies since 1920s and replacing them with bus systems. GM is convicted just once, of conspiracy in the Los Angeles case.
1953 » Air conditioning first offered, on a Cadillac.
1954 » GM's U.S. market share reaches 54 percent. Company makes 50 millionth car.
1955 » GM introduces Chevrolet V-8 engine.
1956 » Sloan retires as chairman.
1960 » Reacting to invasion of small European cars, GM introduces Chevrolet Corvair. Car later attacked by Ralph Nader, who wrote book Unsafe at Any Speed that led to congressional auto safety hearings.
1979 » GM's U.S. employment peaks at 618,365, making it the largest private employer in the country. Worldwide employment is 853,000. Decade features sales decline, recession, Arab oil embargo and gains by Japanese automakers.
1980 » Roger B. Smith named chairman. GM loses more than $750 million as car and truck sales plunge 26 percent.
1981 » GM consolidates truck, bus and van operations. Auto workers bash Japanese cars with sledge hammers. Company earns $333.4 million on $62.7 billion in revenue.
1983 » GM and Toyota Motor Corp. of Japan form joint venture to build cars at a GM-owned plant in Fremont, Calif. Smith announces Saturn project to fight Japanese cars. GM makes $3.7 billion.
1984 » GM overhauls North American organization; acquires Electronic Data Systems Corp., owned by Texas billionaire H. Ross Perot, for $2.5 billion. Earnings rise to $4.5 billion on revenue of $84.9 billion.
1985 » Company forms new Saturn Corp. subsidiary. GM acquires Hughes Aircraft Co. for $5 billion. GM makes $4 billion.
1986 » GM announces plans to close 11 U.S. plants. Employment grows to 877,000 as earnings fall to $3.9 billion. After infighting, Perot resigns from board and gets $700 million in severance.
1987 » GM and UAW reach contract prohibiting closure of a plant unless its product sales fall. Earnings rise to $3.6 billion.
1988 » Earnings rise to $4.6 billion and revenue hits $123.6 billion. Employment drops to 766,000.
1989 » GM complies with federal regulations and equips about 15 percent of fleet with driver's air bags, blames devices for boosting car prices. Profits fall to $4.2 billion.
1990 » GM and Saab-Scania AB of Sweden form joint venture to make cars in Europe. Smith retires as chairman, succeeded by President Robert Stempel. GM launches Saturn, takes $2.1 billion charge for four plant closings, and profits fall to $102 million as auto sales plummet.
1991 » Company loses industry record $4.45 billion. Stempel announces GM will close 21 plants over the next few years and eliminate 9,000 salaried and 15,000 hourly jobs in 1992, in addition to layoffs at shuttered plants.
1992 » Board strips some of Stempel's authority. Stempel later resigns, saying rumors about his future compromised his ability to lead. Jack Smith gets title of chief executive officer and outside director John Smale is named chairman.
1996 » GM spins off Electronic Data Systems as a separate company.
1997 » GM sells defense electronics business of Hughes Electronics to Raytheon and merges Hughes' auto parts business with Delphi Automotive Systems (now Delphi Corp.).
1998 » Strikes at two Michigan parts plants shut down almost all North American production.
1999 » Delphi is spun off as a separate company. GM purchases rights to the Hummer brand from AM General.
2000 » President Rick Wagoner replaces Smith as CEO. GM cuts 10 percent of white-collar employment.
2002 » GM spends $251 million on 42 percent stake in South Korea's bankrupt Daewoo Motor and names it GM Daewoo Auto & Technology Co. Stake later increased to 51 percent.
2003 » GM sells defense unit to General Dynamics Corp. for $1.1 billion and sells 20 percent stake in Hughes Electronics to News Corp. for $3.1 billion.
2004 » Last model year for Oldsmobile.
2006 » About 47,600 GM and Delphi hourly workers take buyout or early retirement offers. GM investor Kirk Kerkorian suggests alliance with Nissan and Renault, which GM's board examines and rejects; Kerkorian sells much of his stake. GM sells 51 percent stake in GMAC Financial Services to group led by Cerberus Capital Management LP for $14 billion.
2007 » GM loses $38.7 billion, including $39 billion third-quarter charge for unused tax credits. It's the largest annual loss in auto industry history. GM reaches historic contract with United Auto Workers that shifts billions in retiree health care expenses to union-administered trust. Company agrees to pay $33.7 billion into trust. Contract also lets company pay some new hires $14 per hour. U.S. market share is 23.7 percent. GM sells Allison Transmission to The Carlyle Group and Onex Corp. for $5.6 billion.
2008 » Gas prices hit $4 per gallon and truck sales plummet. GM announces plan to close four pickup and sport utility vehicle factories, plans to shed 8,350 jobs. Hummer brand put up for sale. By fall, executives begin asking congressional leaders for aid. GM and Chrysler talk about a merger, but talks die down as both companies' sales continue to fall on U.S. and worldwide recession woes. By December, GM tells Congress it needs $18 billion to stay afloat. It receives $13.4 billion, and racks up a $30.9 billion annual loss and burns through $19.2 billion.
2009 » The Obama administration takes office in January. On Feb. 17, GM says it will need a total of $30 billion and its Saab unit files for bankruptcy in Sweden. In its restructuring plan presented to the U.S. government, GM say it will only keep Saturn running through 2011, but it's open to the possibility of spinning off the money-losing brand to retailers or investors. Discussions are ongoing.
March 30 » President Barack Obama -- a day after firing CEO Rick Wagoner -- tells GM it hasn't done enough to restructure and gives the company until June 1 to make aggressive cuts. Chief Operating Officer Fritz Henderson takes over as CEO. Board member Kent Kresa becomes interim chairman.
April 27 » GM asks 90 percent of its bondholders to participate in a debt-for-equity swap to rid the company of $24 billion by giving them 225 shares for every $1,000 in bond for a combined 10 percent stake in the company. Existing shareholders would end up with 1 percent of the company following the issuance of 62 billion new shares and a 100-for-1 reverse stock split. GM also says it will end the Pontiac line.
May 7 » GM reports a first quarter loss of $6 billion, with revenue falling by more than half.
May 15 » GM says it will end contracts with about 1,100 dealers.
May 26 » UAW agrees to job cuts, 14 plant closures, and a 20 percent equity stake in the company to cover retiree health care costs. Members are expected to vote on the changes by the end of the week.
May 27 » GM says debt exchange offer has failed. Bankruptcy appears likely, as GM tries to get all parties to agree to new, leaner terms before June 1. Government loans now total $19.4 billion.
Sources: Associated Press archives, Hoover's, General Motors Corp.
