GM Goes Bust - American Icon Collapses
American Icon General Motors Corp.(GM) has gone bust.
Yesterday,the motor giant,once hailed by Time as a symbol of American success, collapsed in landmark Chapter 11 bankruptcy with 88,000 employees.
Amid the worst contraction in five decades in the U.S.economy,GM is the largest manufacturer to go bankrupt in history.
Its demise is in sharp contrast to the 514,000 employees in 119 plants in 65 cities in 19 states reported by Time in 1955 when GM's income and resources were more than most sovereign nations.
Today,the 101-year-old vehicle maker founded in Detroit in 1908,is a shadow of what was once the world's largest company.
Its share price plunged to 75 cents on May 29 after latest losses since January 2008 mounted to at least $58 billion.
Since 2004,GM has accumullated losses totalling $88 billion.
Its bankruptcy is ranked the fourth largest in U.S. history behind Lehman Brothers Holdings Inc.($691.1billion) in Sept. 2008;Washington Mutual($327.9billion) also in Sept.2008 and WorldCom Inc.($103.9billion) in July 2002.
It is also more than double the bankruptcy of its competitor,Chrysler LLC ($39.3billion)in April,2009.
By seeking shelter under Chapter 11,GM wants to gain time to restructure its messy finances to reshape itself into a leaner more cost effective going concern.
The U.S. government has committed $50 billion in loans for a 60 percent stake in the massive bailout of the motor industry giant or at a hefty price of $125,000 per employee.
It has already advanced $20.57 in U.S.Treasury loans.
It will pump the balance $30 billion into the new GM to enable it to reinvent itself in the next 60 to 90 days and the months ahead.
In its bankruptcy filing before U.S. bankruptcy judge Robert Gerber in Manhattan yesterday,GM disclosed it owed more than 100,000 creditors.
It had debts of $172.8billion, more than double its assets.
The court will oversee the sale or liquidation of at least 11 factories and the Saturn and Hummer brands.
The new GM will focus on four core brands - chevrolet,Cadillac,Buick and GMC - needing sales of at least 10 million units to break even.
It is expected to remain private for 18 months.
About 21,000 of its 88,000 workforce will face lay-offs.
Among the reasons for the bankruptcy are high labour costs and health benefits, tough foreign competition from the likes of Toyota and Honda,rising fuel prices, sales slump and the current credit crunch.
The Dow Jones Industrial average,that GM has figured prominently as a component stock since 1925, dropped it and replaced it with Cisco Systems.
It registered dismay capitalization of $458 million on the day of its bankruptcy filing, a huge wealth wipeout and plunge from $59 billion in 2000.
Perhaps, the demise of GM will spur the transformation of the motor industry from fossil fuel powered vehicles to more efficient solar and electric powered vehicles in future - a great blessing for mankind living in increasingly polluted cities on planet Earth.
U.S.President Barack Obama,expressing confidence that a new GM would emerge from the ashes,yesterday said:"GM and its stakeholders have produced a viable achievable plan that would give this iconic American company a chance to rise again."
To help GM plug its layers upon layers of debts built up over decades,the Canadian government will also put in $9.5 billion for an 11.7 percent stake in the new GM.
The United Auto Workers Union with 500,000 retirees, will hold 17.5 per cent for GM's debt of $20.6 billion.
Bondholders which include Wilmington Trust ($22.8billion),Deutsche Bank ($4.4billion) and Bank of New York Mellon ($176 million) will get an initial 10 percent stake and warrants for additional 15 percent.
Magna International with the German government backing will take over GM Europe and the Opel and Vauxhall brands.