General Motors begins bankruptcy filing-WEB ONLY

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General Motors Corp., the century-old automaker battered by the economic downturn, mounting debt and management problems, filed for Chapter 11 bankruptcy protection this morning as part of an Obama administration 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. It comes as smaller rival Chrysler appears ready to make a speedy exit from its own court proceedings.

A GM dealership in New York filed for bankruptcy protection early today, beginning the wave of court filings in Manhattan bankruptcy court as the automaker begins a complex reorganization that the government insists can be completed within three months.

The government will end up with a 60-percent ownership stake and an unprecedented role in reshaping the auto industry.

President Barack Obama planned to announce his support for General Motors this morning as it enters bankruptcy protection, vowing to provide billions more in government aid and protect the taxpayers’ investment without interfering with the company’s day-to-day operations. GM President and CEO Fritz Henderson is expected to hold a news conference in New York immediately following Obama’s address from the White House.

Administration officials said late yesterday the federal government would provide an additional $30 billion to GM – which has already received about $20 billion in government loans – to help it restructure through bankruptcy. GM will follow a similar course taken by Chrysler LLC, which filed for Chapter 11 protection in April and is emerging from its government-sponsored bankruptcy this week.

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 network.

Meanwhile, a federal bankruptcy judge has approved the sale of most of Chrysler LLC’s assets to Italian automaker Fiat, clearing the way for the American automaker to exit court protection shortly. Judge Arthur Gonzalez said in a court filing yesterday that he approved the sale, the major piece of a plan orchestrated by the federal auto task force.

GM will move forward with four core brands – Chevrolet, Cadillac, Buick and GMC. 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 is expected to announce plans to close 11 facilities, idle three others and name the buyer of its Hummer division. GM’s stock dropped to its lowest price in company history Friday, closing at just 75 cents per share. The shares will be virtually worthless in after Chapter 11 reorganization.

“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.”

The early-Monday court filing started with Chevrolet-Saturn of Harlem Inc.. It’s Chapter 11 petition lists the company’s largest creditors as a trust company that holds more than $22 billion in bond debt, and the United Auto Workers union, which is owed more than $20 billion dollars.

The size of those figures indicate the dealership’s filing in Manhattan bankruptcy court is part of GM’s overall filing for bankruptcy protection.

The automaker itself is expected to file its own Chapter 11 petition around 8 a.m. Many GM affiliates will have to file separate petitions as part of the process.

The Harlem dealership’s filing shows the U.S. government will form a new company called Auto Acquisition Corp. to acquire the dealership’s assets and many others.

The new company would become the “New GM” that would be owned by the U.S. and Canadian governments, the UAW and GM’s current bondholders and would emerge from bankruptcy protection as a leaner, competitive automaker that can become profitable.

The filing lays the groundwork for the financing from the U.S. Treasury Department and the Canadian government that will keep General Motors Corp. and its affiliates operating while they’re in bankruptcy protection.

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

The bankruptcy 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.

The billions in federal loans will come from the $700 billion rescue fund for the financial sector, representing another significant intervention into private enterprise. The Treasury has used funding to stabilize banks, take a majority ownership in insurance conglomerate American International Group and guide Chrysler through bankruptcy.

Despite its large ownership stake in GM, administration officials said the government intends to avoid interfering with routine management decisions and would strive to shed its ownership stakes “as soon as practicable.”

But the arrangement was fraught with potential conflicts. Daily operations will be carried out by GM’s management, but the administration will play a role in selecting a majority of the new board of directors.

Obama ordered the firing of former GM CEO Rick Wagoner and instructed GM to trim itself to a break-even point of 10 million U.S. car sales a year instead of its previous break-even point of 16 million vehicles.

Ahead of its bankruptcy filing, GM rushed to win concessions from stakeholders.

A group of large, institutional bondholders, representing 54 percent of GM bondholders, agreed to exchange their unsecured bonds for a 10-percent stake in a newly restructured company, plus warrants to purchase a greater share later. They had balked at an earlier offer that gave them 10 percent of the company.

The United Auto Workers union agreed to a cost-cutting deal last week.

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