American icon GM files for bankruptcy

The filing in the same New York court that approved a speedy restructuring for Chrysler late Sunday aims to allow the former world number one carmaker to re-emerge as a new, leaner company within 60 to 90 days.

The new firm "will be built from only GMs best brands and operations, and it will be supported by a stronger balance sheet due to a significantly lower debt burden and operating cost structure than before," the Detroit giant said in a statement.

"Today marks a defining moment in the reinvention of GM as a leaner, more customer-focused, and more cost-competitive company that, above all, can quickly generate winning bottom line results," said Fritz Henderson, GM chief executive since late March.

"The economic crisis has caused enormous disruption in the auto industry, but with it has come the opportunity for us to reinvent our business. We are going to do it once and do it right.

GM listed asset of 82.3 billion dollars and debts of 172.8 billion in the case, assigned to Judge Robert Gerber, in one of the biggest bankruptcy cases in US history.

The US industrial icon enters the process aiming for a so-called pre-packaged bankruptcy with billions in government financing and agreements in place to cut labor costs, swap much of its debt for equity and reduce its liabilities by 50 percent.

Senior US officials pledged to provide 30 billion dollars to the "new GM" to emerge from the process, on top of nearly 20 billion dollars already loaned to the ailing firm.

The deal would give the US government a 60 percent stake in the auto giant, while the governments of Canada and Ontario, which have several GM factories, will provide an additional 9.5 billion dollars in financing and receive a 12 percent stake.

The European Opel and Vauxhall subsidiaries are leaving the GM empire under a rescue engineered this weekend in Germany with support from a Canadian company and a Russian bank.

Officials said the process is expected to be similar to that of Chrysler, which is expected to emerge from bankruptcy protection this week after just over a month.

"We’ve seen with the Chrysler bankruptcy, which for a number of reasons may have been easier, it can be done," said analyst Rebecca Lindland at IHS Global Insight. "This is GMs opportunity to right size itself."

The largest US automaker will close 11 plants and idle three others as it slashes its operating costs in order to lower its break-even point by 40 percent in terms of overall US industry sales.

Officials said that the Obama administration has no intention of nationalizing General Motors over the long term and will not be participating in its day-to-day operations. 

"The goal is to promote strong viable companies that can become profitable quickly and contribute to economic growth and jobs without government involvement," a senior US official said.

Creditors holding about 54 percent of Generals Motors bonds agreed to a plan that would swap 27.1 billion dollars in debt for a 10 percent stake and warrants allowing them to buy an additional 15 percent stake, officials said.

Bondholders who rejected the plan could still fight it in court, but the government maintains they could end up with little or nothing if they take that path.

A retiree health care trust will receive a 17.5 percent stake in the new GM and 6.5 billion dollars in preferred stock in exchange for forgiving much of a 20-billion-dollar obligation.

Employees will continue to be paid and GM will immediately seek permission to continue to pay suppliers and honor customer warranties.

GM will also offer about 40 percent of its dealers 18 months to wind down their operations and will immediately seek permission to honor incentives offered to its remaining dealers, under a plan to shrink the number of GM sales outlets.

The GM filing came just hours after a US bankruptcy judge approved the sale of distressed US automaker Chrysler to a group led by Fiat, saying this was the only was to save the company and paving the way for its emergence from bankruptcy.

Obama said the ruling allows the automaker "a new lease on life."

"We said this process would be completed quickly and efficiently, and that’s exactly what has been accomplished today," Obama said.

An appeal was lodged Monday by creditors objecting to the plan.

The US Treasury has provided Chrysler with some nine billion dollars in emergency aid. the Italian automaker must repay this money if it wants to take a majority stake in the Detroit firm.