Published June 2, 2009

GM files for bankruptcy protection

Judge approves sale of Chrysler to Fiat, driving out more than 300 objections

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(NEW YORK) General Motors filed for bankruptcy protection yesterday as part of the Obama administration's plan to shrink the automaker to a sustainable size and give a majority ownership stake to the federal government.

Final chapter: Outside US Bankruptcy Court in New York yesterday as GM files for bankruptcy protection. It has US$172.8 billion in debt and US$82.3 billion in assets

Meanwhile, the other ailing American carmaker, Chrysler LLC won court approval late on Sunday to sell most of its business to a group led by Italy's Fiat SpA, a deal intended to fire up its idled manufacturing plants and resume an 84-year history of selling American cars.

US Bankruptcy Judge Arthur Gonzalez approved Chrysler's sale in a ruling filed at 11.15 pm on Sunday in Manhattan. The sale faced more than 300 objections. Judge Gonzalez overruled those that weren't withdrawn or resolved.

The carmaker is selling itself to an entity owned by Fiat, a union benefit trust, the US Treasury and the Canadian government. The company will get US$2 billion in cash to distribute to secured lenders holding US$6.9 billion in loans. Turin-based Fiat can walk away from the sale if it isn't completed by June 15, with a one-month extension for antitrust approvals. The company didn't receive any other bids for its assets, attorneys said.

'Not one penny of value of the debtors' assets is going to anyone other than' lenders who deserve it, the judge wrote in the 47-page ruling.

GM's bankruptcy filing is the fourth-largest in US history and the largest for an industrial company. The company said it has US$172.81 billion in debt and US$82.29 billion in assets.

'It's been a long time coming, but the reality of a GM bankruptcy is still a bitter pill to swallow - it's a bit like the Titanic sinking,' said Stephen Pope, chief global strategist at Cantor Fitzgerald in London. 'This is a step they should have taken more than a year ago, which could have put them in much better shape before the economy went down.'

The fallen icon of American industrial might will rely on US$30 billion of additional financial assistance from the Treasury Department as it reorganises. That's on top of about US$20 billion in taxpayer money GM already has received in the form of low-interest loans.

GM will follow a similar course taken by Chrysler LLC, which filed for bankruptcy protection in April and hopes to emerge from its government-sponsored bankruptcy this week.

The plan is for the federal government to take a 60 per cent ownership stake in the new GM. The Canadian government would take a 12.5 per cent stake, with the United Auto Workers getting a 17.5 per cent stake and unsecured bondholders receiving 10 per cent. Existing GM shareholders are expected to be wiped out.

President Barack Obama was scheduled to address the nation about GM's future at midday from Washington, and GM CEO Fritz Henderson was to follow him with a news conference in New York.

Beyond the bankruptcy announcement yesterday, GM is expected to reveal 14 plants it intends to close. One of those plants, however, will be retooled to build a small car.

The third of the one-time Big Three, Ford Motor, has also been stung hard by the sales slump, but it avoided bankruptcy by mortgaging all of its assets in 2006 to borrow roughly US$25 billion, giving it a financial cushion GM and Chrysler lacked.

The downsized GM's brands will be limited to Chevrolet, Cadillac, GMC and Buick. Its Pontiac, Saturn, Hummer and Saab operations will be either sold or closed. GM said it was finalising a deal to sell Hummer, and plans for Saturn are expected to be announced within weeks.

Trading of GM shares was halted early yesterday after they plunged on Friday as low as 74 cents, the lowest price in the company's 100-year history.

GM will be kicked out of the Dow Jones Industrial Average because rules established by the News Corp. unit that oversees the index prohibit it from including companies that have filed for bankruptcy. -- AP, Bloomberg