GM Files Chapter 11: President vows quick process

During confirmation hearings in 1953, GM President and Eisenhower defense secretary nominee Charles E. Wilson told the Senate Armed Services Committee there would be no conflict of interest in any decisions that might affect GM "because for years I thought what was good for the country was good for General Motors and vice versa."

Today, Wilson's often misquoted pronouncement begins an extended test period as "the country" assumes the helm following the giant automaker's Chapter 11 bankruptcy filing in New York City this morning.

Over the past week, negotiations among the U.S. Treasury, GM and its bondholders and the UAW have centered on concessions, percentage ownership hanging in the balance. In what was its final trading day Friday, GM shares closed at 75 cents, plunging market capitalization to $530 million - roughly 1pct of its 2000 value - and essentially wiping out current shareholders.

In a noon speech today from the White House, President Barack Obama stated the government would expedite GM's restructuring under Chapter 11 with an injection of $30.1 billion in financing but vowed to take a "hands-off" approach to managing the automaker. There will be no suspension of operations during the restructuring.

That said, the government's 60pct equity stake includes the right to replace any and all current members of GM's board of directors. Expect the Canadian government to appoint one director and the United Auto Workers (UAW) to appoint another.

Late Sunday, Chrysler's bankruptcy judge approved the sale of that company's assets to a Fiat-led group. Obama touted that as an indicator of the progress being made on the month-old Chrysler front promising similar alacrity in prosecuting GM's case.

Obama praised GM's management team for coming up with a restructuring plan "that meets the strict standards I laid out at the beginning: to streamline GM's brands, clean up GM's balance sheet and make it possible for GM to compete and succeed."

The new GM will build a higher percentage of its cars in the U.S. and Canada and build more fuel efficient cars. The President thanked the governments of Canada and of its Ontario province for contributing $9.5 billion to the restructuring till in exchange for a 12pct equity position, plus $1.7 billion in debt and preferred stock.

Obama also thanked the German government for providing financing to expedite the sale of GM's Opel brand to Canadian supplier Magna International.

Despite deep cuts in benefits, the President said that further wage concessions will be required from the UAW, which will wind up eventually with a 20pct stake in the new GM through a VEBA (Voluntary Employees Beneficiary Association) trust for retiree health care benefits.

A majority of the company's unsecured bondholders (54pct) agreed to last-minute terms offered by the U.S. Treasury and will hold a 10pct equity position with warrants to purchase an additional 15pct later. The bankruptcy court will sort out what's to be done with the 46pct who held out.

Albert Koch, a veteran turnaround artist who was the architect of K-mart's reorganization under Chapter 11, has been appointed GM's chief restructuring officer.

GM said today that the 1,124 dealers whose franchises will not be renewed on October 31, 2010 will be kept on the roster until that date. Chrysler had summarily terminated its disposable dealers as is allowed under Chapter 11.

GM has launched an interesting new website called GM Reinvention explaining various ramifications of the pending restructuring. It's worth a peek.