Tech & Biz

Obama Announces General Motors Bankruptcy Filing for Chapter 11

by Jordan Yerman | June 1, 2009 at 08:03 am

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US President Barack Obama is announcing General Motors' bankruptcy protection filing, stating that the federal government is a "reluctant shareholder" and does not want to get involved in day-to-day management of the floundering automaker. This is the largest industrial-corporation bankruptcy in US history, and the third-largest overall, just behind Lehman Brothers and WorldCom.

Obama is citing the mounting debt for the drastic and expensive move taken in using taxpayer money to prop up General Motors, and is telling Americans not to worry about buying American cars, and has announced an order for a new government-use fleet of GM cars to "kickstart demand".

Under the terms of a Section 363 sale, the "old" GM will remain bankrupt, abandoned at the side of the road as the "new" GM (hopefully) cruises toward a new, solvent horizon.

Meanwhile, Michael Moore, who was raised in GM's hometown of FLint, MI, has posted a eulogy of sorts on his own site, both lamenting the passing of a giant, and acknowledging that GM had begun digging its own grave a long time ago.

Forty percent of the homes and businesses in the city have been abandoned. Imagine what it would be like if you lived in a city where almost every other house is empty. What would be your state of mind?

It is with sad irony that the company which invented "planned obsolescence" -- the decision to build cars that would fall apart after a few years so that the customer would then have to buy a new one -- has now made itself obsolete.

The key element from the Moore article is that GM doesn't have to jsut build cars. During World War II, GM factories retooled to crank out military hardware, and a similar revamping can now take place: General Motors can be the brand name for light rail, high-speed trains, and better buses.

General Motors will file for Chapter 11 bankruptcy protection on Monday, June 1 at 11:55am EDT.

GM will then spend two or three months in court executing a 363 sale, in which it basically sells itself to a new company of the same name. So, General Motors will sell General Motors to General Motors, but it won't be the same General Motors that sold General Motors. Got that?

The point of the sale is to ditch some of GM's (the original GM, now) liabilities, to reduce the break-even point.

The “new GM” will get $30.1 billion in bankruptcy financing from the government, and the Treasury “does not anticipate providing any additional assistance” after that, the Obama administration said yesterday in a statement. The federal government will have a 60 percent equity stake in the retooled automaker, and 12 percent will be held by the Canadian government, which is lending $9.5 billion to the company.

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Mary Richard

at 21:46 on May 31st, 2009

From CNN:

President Obama will address the nation shortly before noon on Monday to explain the rationale for the filing and his hopes that this is the best route for a turnaround.

"Today will rank as another historic day for the company -- the end of an old General Motors and the beginning of a new one," the administration stated in documents released Sunday.

Uwe Paschen

at 22:11 on May 31st, 2009

So, we lost all the billions that did already go into it. The Government needs to change the laws and make them accountable as well as seize their assets including those of the CEO. They received a great deal of Tax payers money over the past two decades in grants, Loans and tax breaks as well as government top contracts.

Enough, I think it is grand time to Nationalize all those Banks and Companies. We can still privatize some of it again at a latter date.

For now, it is time to reform and clean house. Not only in the business sector though and the Banking, in politics as well.

Some serious reforms are needed and a lot of heads need to be taken off so to speak.

Jordan Yerman

at 08:49 on June 1st, 2009

I don't always agree with Michael Moore, but I think he's right in this case: if GM re-emerges just to build more cars, as it has done in the past, then this is a wasted exercise. We have factories and skilled labor and should be building other stuff.