General Motors, the humbled auto giant that has been part of American life for more than 100 years, will file for bankruptcy protection today in a deal that will give American taxpayers a 60-per-cent ownership stake and expand the U.S. government’s reach into big business.
Underscoring the government’s extraordinary role, President Barack Obama planned to announce his support for GM’s restructuring strategy at a midday appearance at the White House, much as he did in April when Chrysler sought court protection.
GM president and CEO Fritz Henderson planned to hold a news conference in New York immediately following Obama’s announcement.
In Canada, Prime Minister Stephen Harper will make a joint announcement in Toronto today with Ontario Premier Dalton McGuinty and Federal Industry Minister Tony Clement.
Administration officials said late Sunday the U.S. federal government would pump $30 billion dollars into GM as it makes its way through bankruptcy court. That’s besides the $20 billion in taxpayers’ money that the Treasury already lent to the automaker.
The money would come from what remains of the $700 billion rescue fund for the financial sector.
A second person familiar with the details said the Canadian government would take a 12.5-per-cent stake in GM and a United Auto Workers trust for health care expenses would get 17.5 per cent. Bondholders would receive a 10-per-cent stake with the possibility of increasing their share to 25 per cent.
The officials, speaking on condition of anonymity in advance of Obama’s public remarks, said the administration expects the 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 force. The company will stick with its four core brands — Chevrolet, Cadillac, Buick and GMC and jettison the others.
The company plans to cut 21,000 employees, about 34 per cent of its work force, and reduce the number of dealers by 2,600. It wasn’t immediately clear how many, if any, of the workforce and dealership reductions would be made in Canada.
“There is still plenty of pain to go around, but I’m confident this is far better than the alternative,” Democratic Senator Carl Levin of Michigan said Sunday after being briefed about the developments by the president. “It’s a new beginning, it’s a rebirth, it’s a new General Motors.”
The U.S. government’s ownership stake and huge financial injection represents yet another remarkable intervention into the American private sector. The Treasury has stepped in to help banks, it has taken majority ownership in insurance conglomerate American International Group and it has guided Chrysler through bankruptcy protection proceedings.
GM plans to name turnaround executive Al Koch to serve as its chief restructuring officer to help the company through bankruptcy protection, said a person familiar with the matter.
Koch, a managing director with AlixPartners LLP, is a veteran turnaround specialist who helped Kmart Corp. through its Chapter 11 reorganization.
A majority of the Detroit automaker’s unsecured bondholders have accepted a deal viewed as crucial to reorganization, and Germany agreed to loan $2 billion to GM’s German unit, Opel, as part of its acquisition by Canadian auto parts supplier Magna.
In Germany on Sunday, the government agreed to loan GM’s Opel unit $2.1 billion, a move necessary for Magna International Inc. to acquire the company.
The Canadian auto parts supplier Magna will take a 20 per cent stake in Opel and Russian-owned Sberbank will take a 35 per cent, giving the two businesses a majority. GM retains 35 per cent of Opel, with the remaining 10 per cent going to employees.