2 Jun 2009

General Motors files for bankruptcy protection

9:37 am on 2 June 2009

Car giant General Motors has filed for bankruptcy protection, marking the biggest failure of an industrial company in American history.

The widely expected move comes after GM had seen its losses widen following a steep fall in sales in recent years.

The bankruptcy filing is the third-largest in US history, following Lehman Brothers' collapse and the failure of telecoms giant WorldCom, and is and the largest bankruptcy ever in US manufacturing.

It gives the company protection from its creditors while a judge decides how it is going to be reorganised.

GM has identified assembly, stamping and powertrain plants that it plans to close in the restructuring.

It also plans to close three service and parts operations, affecting 18,000 to 20,000 hourly workers.

However it has affirmed plans to build a future small car in the United States.

The US Government will take a 60% stake in the company in return for $US50 billion in assistance.

Following the bankruptcy filing, GM shares were removed from the Dow Jones industrial average.

Obama positive

US President Barack Obama says he is confident the company will emerge quickly from bankruptcy, saying the Government is in a reluctant position as a controlling shareholder.

He says the automaker - not his administration - will make decisions on plants, new products and day-to-day operations.

The 100-year-old stricken firm has been losing market share since the early 1980s.

It has been driven to bankruptcy because of high production costs and the collapse in credit markets and consumer spending. Last year, it made losses of $US30 billion.

The new, leaner company to emerge from the bankruptcy is due to be re-launched within 90 days.

Creditors holding GM bonds have approved the restructuring plan. They will have up to 25% ownership in a reorganised company in return for $US27 billion in debt. About 54% of the bond holders voted in favor of the deal.

General Motors has also concluded a revised agreement with the United Auto Workers union in the past week. The union will have a stake of 17.5% in a restructured company.

The Canadian government and Fiat will also have a stake.

Since 2000, General Motors has slashed over 100,000 jobs in the United States. Another 21,000 GM factory jobs are scheduled to be cut under the deal approved by the United Auto Workers union this week.

European operations

General Motor's European arm is likely to be spared bankruptcy following a proposed deal by Canadian car parts maker Magna International to buy GM Europe's Vauxhall and Opel brands.

However, unions fear that jobs may be lost at Vauxhall's British plants in Luton and Ellesmere Port, which employ 5,500 people.

Jobs may also go in Belgium, Poland and Spain.