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General Motors became the world's biggest-ever industrial bankruptcy today but pledged to rise from the ashes by the end of the summer.
The giant US carmaker behind such brands as Cadillac, Buick and Hummer today filed for bankruptcy protection from its creditors as part of a Washington bailout that will cost the US taxpayer $50 billion (£30.5 billion).
GM is following the trail blazed by great rival Chrysler, which today was formally bankrupted. It had filed for protection a month ago.
The formal bankruptcy of Chrysler triggers a deal that will see the carmaker taken over by Italian car group Fiat in league with healthcare funds of US carworkers' union the United Auto Workers.
It is envisaged that GM will follow the same template but with the US government taking a majority 60% control.
With a New York court signing GM's protection from creditors, sources close to the company said a newly constituted GM could be formed and operational between 60 and 90 days.
With liabilities outstretching assets by more than $90 billion, the failure of GM makes it the largest industrial collapse in corporate history, rivalling for profile the failure of Lehman Brothers at the height of America's financial crisis last autumn.
The US Treasury will take its stake in return for making available $31 billion on top of the $19 billion already injected. The Canadian government plans to put in $9.5 billion in return for a 12% stake in the new GM.
The unions' healthcare funds and the GM bondholders will also hold minority stakes in the new company.
Ahead of a speech to the nation by President Obama on the wreckage of the US automotive industry, Treasury Secretary Tim Geithner said: “We want a quick clean exit as soon as conditions permit. We're very optimistic these firms will emerge without further government assistance.”
Even if GM ditches more than a third of its 61,000 workers and closes as many as 10 US factories, experts still fear for the future of a heavily restructured, leaner New GM.
Bruce Clark of credit Moody's credit rating agency said: “The ultimate revitalisation of the company will likely depend heavily on the revenue side.”
He added that the most important deciding factors were how quickly car sales recover and how many will be prepared to buy cars from “a manufacturer in bankruptcy”.
Judge Robert Gerber will handle the bankruptcy. He is best-known for running the high-profile bankruptcy of cable TV giant Adelphia, eventually bought by Time Warner and Comcast for nearly $18 billion in 2006.
Reader views (1)
The American "British Leyland" is born, but will die a long, slow, painful death over the next 20 years.
- Dave Davies, Basingstoke, 02/06/2009 09:23
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