Ed Whitacre, Jr., could formally assume the chairman's post at the "new" GM as early as this coming Friday, July 10th.
A “new” General Motors seems likely to emerge from the ashes of bankruptcy by the end of the week, now that a federal bankruptcy judge has given the automaker the go-ahead for a so-called “363 Sale.” The order approving the sale came with an automatic 4-day stay, which would give time for appeals to be filed.
The sale process allows the automaker to transfer its good assets to an all-new company. That includes dozens of assembly and parts plants that will turn out product for the four remaining North American brands. The bad assets, including dozens of plants now closed or slated for closure, will be kept as part of the old GM, which will eventually settle claims against the company for pennies on the dollar.
The new GM will be markedly smaller than the company that existed prior to bankruptcy. Its North American workforce, once numbering close to 1 million, will fall to around 64,000, although the low number does not take into account GM workers previously transferred to Delphi, which is also in bankruptcy. Of eight North American marques, half will survive: Chevrolet, Cadillac, Buick and GMC. GM’s market share hit 20.3% in June. And the new GM Company wants to hold share to at least 18.5%, the break-even point at the current market volume of under 10 million units annually, once its downsizing has been completed.
“This has been an especially challenging period, and we’ve had to make very difficult decisions to address some of the issues that have plagued our business for decades,” said General Motors CEO Fritz Henderson in a statement released today. “Now it’s our responsibility to fix this business and place the company on a clear path to success without delay.”
The decision by U.S. Judge Robert Gerber followed three days of hearings, last week, during which GM representatives, including Henderson, outlined their plans for the future and made their case for a quick move through the bankruptcy process. Representatives of the Obama White House — which has overseen the GM strategy — indicated that the government’s support for the automaker could be pulled if it didn’t meet a July 10th deadline for wrapping up the bankruptcy process.
Opponents countered that there were alternative ways to handle GM’s restructuring, which would yield a larger payout to debt holders who, collectively, will now have to write off billions of dollars in losses.
But in his Sunday night ruling, Judge Gerber wrote, “nobody can seriously dispute the only alternative to an immediate sale is liquidation — a disastrous result for GM’s creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates.”
Barring a last-minute hitch, the automaker will have completed the court portion of its restructuring in unexpectedly short order, having only filed for Chapter 11 bankruptcy on June 1st. Both the government and company representatives contended, during testimony, that speed was essential to ensure the new General Motors’ chances. But even the most optimistic insiders initially thought the process might take two to three months, while doubters contended GM would be lucky to get out of court before the end of the year.
The automaker did have help in its effort to drive a fast process, including the power of the U.S. Presidency. GM could point to various precedents set during the bankruptcy hearings on Chrysler, which also moved through the courts at a record pace. There was only the briefest of hiccups, when a Supreme Court justice issued a brief stay. The full court quickly decided not to even consider the case, permitting the smaller automaker to emerge, barely a month ago, under the effective control of Italy’s Fiat.
For GM, the White Knight is the White House, which will now control about 60% of the new automaker’s shares. The rest will be divided up between a health care fund controlled by the United Auto Workers Union, the Canadian and Ontario governments, and various banks, hedge funds and other lenders who traded debt in the old GM for equity in the new.
In a speech, on the morning of GM’s bankruptcy filing, President Barack Obama insisted the government does not have any interest in playing a role in the automaker’s day-to-day management. CEO Henderson, in an interview with TheDetroitBureau.com, last month, acknowledged being on a “short leash,” with government overseers working closely with the company to complete the bankruptcy process. But Henderson added that he expected a more passive involvement after the 363 sale.
“The government said, and I believe them, that they will sell off their equity over time,” Henderson told TheDetroitBureau.com “My job is to do the best we can and if we do, we’ll create real market value for them.”
Paying the Treasury back won’t be easy. Taxpayers will have invested a total of $51 billion to keep the automaker alive. That will need to be repaid, with interest, before the government can hope to make any additional profit on its vast holdings in what was, for most of the last a century, the world’s largest automaker.
While the new GM will be markedly smaller, there are some signs that it won’t be content to simply accept its downsizing as a fait accompli. One point is the unexpected snag that has developed in the sale of a controlling stake in GM’s European Opel subsidiary. Front runner MagnaInternational, with its Russian partner, Sberbank, has been unable to complete the acquisition, and insiders say one reason is that GM is insisting on the right to buy back a controlling stake at some future date.
Industry observers also point to the hiring of Edward Whitacre, Jr., as General Motors’ new chairman. While Whitacre has no experience in the automotive business, he is considered a tough, no-nonsense executive who made a name for himself as chairman of SBC, the smallest of the so-called “Baby Bells.” Whitacre led the takeover of SBC’s former parent, AT&T, adopting the once-giant telecommunication company’s name.
Few expect to see GM bulk up by buying back other questionable brands, such as Saab or Hummer, but it could ramp up its successful efforts in emerging markets, such as China, Russia and India, where it has a better chance of taking on global rivals like Toyota and Volkswagen.
In the near-term, there could still be more downsizing, however. GM is expected to reduce its executive ranks by 34% between January 1st and the end of this year and Henderson told TheDetroitBureau.com further cuts will be announced by October.
As for the “old” GM, the bankruptcy process leaves it with approximately 50 factories and other plants, and about $1 billion in cash to help pay off various creditors.
“We need to settle claims of bondholders, claims of tort litigants, contract rejection claims,” Albert Koch, the turnaround specialist managing the wind-down of old GM told the Detroit Free Press, over the weekend. “Once we’re able to estimate the claims, we will then file a plan of reorganization, a liquidation plan that basically says, ‘this I how we’re going out of business.’
The bulk of that process, according to Koch, could take another two to three years.