In the largest industrial bankruptcy ever seen in U.S. history, General Motors Corp., the top U.S. automaker and once the world's largest corporation, filed for bankruptcy protection on Monday.
The Detroit-based company, for decades a symbol of American manufacturing supremacy, corporate culture and even lifestyle, filed a Chapter 11 petition to the U.S. Bankruptcy Court for the Southern District of New York early Monday morning.
The collapse of the century-old auto giant came at a time when the United States is experiencing the worst economic recession since the Great Depression. Just a month ago, Chrysler LLC, the country's third largest automaker, took the same path.
Hoping to reemerge from bankruptcy protection as a new, leaner company within 60 to 90 days, GM will close 14 U.S. factories and three warehouses to slash its operating costs, affecting some 18, 000 to 20,000 workers in nine states. It aims to bring down the total number of U.S. plants from the current 47 to 33 by 2012.
The GM bankruptcy, along with the previous one of Chrysler, will also lead to the loss of hundreds of dealers and suppliers as well as hundreds of thousands of jobs, dampening U.S. President Barack Obama and his administration's efforts to stimulate the slumping economy.
However, backed by the U.S. and Canadian governments, GM warranty, service and customer support will continue uninterrupted during bankruptcy. Essential suppliers and employees will be paid in the normal course, according to GM President and CEO Fritz Henderson.
GM court filing also will not affect its overseas operations, including the GM joint venture in China, which said in an overnight statement to Xinhua that the impact "will be minimal to our China business including our operations and sales."
"We will maintain our normal business operations, including our suppliers system, dealers, warranty and customer support operations," it added.
For a company like GM whose importance and prestige were epitomized in once popular phrases like "What's good for General Motors is good for America" and "As GM goes, so goes the nation," its bankruptcy filing was anything but an ordinary case.
The U.S. government, which at the end of last year lent 19.4 billion dollars of taxpayer money to GM in a controversial bailout move, has played a key role in directing and pushing GM in key restructuring talks with auto workers' union and bondholders, to secure a smooth bankruptcy and quick revival.
Under the agreements reached in the last-minute countdown to the bankruptcy filing, creditors holding some 54 percent of GM bonds accepted a plan to swap 27.1 billion dollars in debt for a 10-percent stake in a reorganized "new GM" and warrants for an additional 15-percent stake. A retiree health care trust will get a 17.5-percent stake in the new GM and 6.5 billion dollars in preferred stock.
The liquidation of an iconic company like GM would cause " enormous damage" to the U.S. economy, said President Obama in a brief statement live televised around Monday noon.
Therefore, he said, his administration is investing another 30 billion dollars to help the creation of the new GM, thus becoming the largest stake holder with a 60-percent stake. However, the president explicitly stated that he "has no interest in running" the new GM, which will be able to make decisions on its own.
As GM produces in 34 countries and employs 244,500 people worldwide, some foreign governments, out of concerns about plant closures and job losses, also came to the rescue.
The governments of Canada and the Canadian province of Ontario pledged another 9.5 billion dollars in aid to GM's restructuring, in exchange for a 12.5-percent stake in the new GM. In Germany on Sunday, the government agreed to lend Opel, GM's European subsidiary, 2.1 billion dollars, to pave the way for the acquisition of the company by Magna International Inc., a Canadian auto parts supplier.
President Obama thanked both the German and Canadian governments for their support to the U.S. auto industry.
For some ordinary Americans, the downfall of GM, long regarded as an icon of American dream and a cradle of middle class, seems to be hard to accept.
"It's sad. It's very very sad," said Bob Dewar, one of the baby- boomer generation and one of those who migrated to Detroit in the 1970s for a better life. "The American dream is gone."
But Shusheng Wang, co-director of Global Trade Group at Detroit- based Butzel Long law firm, told Xinhua that he believes GM will benefit from the bankruptcy in the long term.
"GM will shed the bulk of its liabilities, and it will become cost competitive against Japanese transplants under the deal with the union. Even better is that the government will finance the company through bankruptcy," said Wang, who had worked at GM headquarters as a legal counselor for nearly 10 years until 2006.
Topping world auto sales for 77 consecutive years until 2007 and owning internationally-famed brands like Buick, Cadillac and Chevrolet, GM, along with Chrysler and Ford Motor Co. in the so- called Detroit Three, has kept losing ground to its Asian and European competitors due to its over-dependence on powerful, oil- guzzling trucks and sport utility vehicles (SUVs), poor cost management and lax quality control.
Its U.S. market share has plunged from more than 50 percent at its peak time to a barely 20 percent, and it has lost 82 billion dollars in the past four years.
The ongoing global financial crisis, triggered by the U.S. mortgage meltdown, turned out to be the last straw for the mammoth company, whose final struggles with government bailout support proved futile in the face of a severe credit crunch on the financial market and a 35-percent drop in new cars demand in the United States since last October.
Public began losing confidence in GM. Its shares dropped to 75 cents as close of Friday, the lowest level in 76 years, and less than the 1-dollar minimum price normally needed for a New York Stock Exchange listing. The long-term blue chip was kicked out of Dow Jones Industrial Average right after its bankruptcy filing on Monday, with networking giant Cisco Systems taking its place.
However, industry experts pointed out that the Monday bankruptcy might have opened a new chapter for the aging GM, founded in 1908, and the company stands a chance to reemerge as an industry leader if it can well adapt itself to the new challenges faced by the global auto sector.
Amid growing concerns about soaring oil prices and dire consequences of climate change, the Obama administration on May 19 unveiled tough standards for tailpipe emissions from new automobiles to be sold in the United States, while also raising the auto fuel efficiency targets.
In his Monday statement, Obama said that GM has prepared a " viable and achievable" plan to rise again, and expressed his confidence that the new GM will be able to produce "high-quality, safe and fuel-efficient cars of tomorrow."
And GM has started preparing for such a comeback even before it enters the courtroom. It has recently introduced Chevrolet Volt, an all-electric plug-in compact car dubbed the company's "new DNA" that "represents a fundamental reinvention of the American automobile industry." It has also confirmed the production of low- emission Ecotec engines at its joint venture in China, which will be mounted on the newly-launched Chevrolet Cruze compact sedan, another fuel-efficient model.
On Friday, the company announced a plan to utilize an idled U.S. assembly line to manufacture small cars. And it plans to sell about 17,300 China-made compact cars in the United States in 2011 and to triple that to about 51,500 in 2014.
"I am absolutely confident that if well managed, a new GM will emerge that can ... outcompete automakers around the world and that can once again be an integral part of America's economic future," Obama said on Monday.
And hopefully he has said it right, because analysts believe that if GM fails again, it will not only drag the U.S. government into deeper deficits and a far steeper decline in Treasury bond prices, but also take toll on the urgently-needed recovery of the U.S. economy.
(Xinhua News Agency June 1, 2009)
