General Motors Files For Bankruptcy Protection

General Motors filed for Chapter 11 bankruptcy protection Monday. It is the largest industrial bankruptcy in U.S. history.

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STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. I'm Steve Inskeep. Renee Montagne is back, just in time for a big development in the auto industry. Hi, Renee.

RENEE MONTAGNE, host:

Hi, Steve.

And in fact it is a very big day for General Motors; once the world's dominant automaker, it has filed for bankruptcy. It's a humbling moment for the industrial giant, and later today President Obama will explain his plans for GM in a national address.

INSKEEP: Now we already know many of the details. Taxpayers will fund the bankruptcy with another 30 billion dollars. And if the proceedings go according to plan, a new and healthier version of GM is supposed to emerge with the government as majority owner.

MONTAGNE: Frank Langfitt covers the auto industry for NPR. He's here with us in the studio. Good morning, Frank.

FRANK LANGFITT: Good morning, Renee.

MONTAGNE: There was a time when half the cars on the roads in America were made by GM. Would you ever have imagined that it would go bankrupt?

LANGFITT: You know, a couple of years back, no. I mean, some analysts talked about it, but I kind of dismissed it back then. But I'd say really, since last fall, it's become clear that this company had way too much debt, plunging sales and just not enough cash. And frankly, you didn't need a finance degree to see that GM just wasn't going to be able to make it on its own. But, you know, what I didn't imagine is what Steve just mentioned a moment ago, that the government is going to end up owning General Motors. I'm still kind of getting my head around that.

MONTAGNE: Well, you know, Chapter 11, it's not about killing companies. It's about saving companies. The White House talks about a new General Motors emerging from this bankruptcy. What might that company look like?

LANGFITT: Well, you know, in many ways we are not going to recognize it. It's going to be dramatically smaller. Today General Motors is expected to name at least a dozen plants it's going to shut down, up to 21,000 more layoffs. Now in bankruptcy, its plan is to slash its liabilities, you know, what it owes people, by more than half. It's going to take Saab, Saturn, Hummer and Pontiac, they're going to be sold off in bankruptcy court. This new GM, there's going to be Chevy, Cadillac, Buick and the GMC Trucks - the stronger brands. They're going to come out of bankruptcy court.

MONTAGNE: And coming out in what point in time, do you imagine?

LANGFITT: The White House is saying 60 to 90 days. And based on what's happened with Chrysler so far, they may well be right. Just yesterday, a judge ruled on the sale of new Chrysler. It's only been in court for a month, so that's getting out - it's going to get out very soon. GM, of course, it's a bigger company, it's more complex, So it will take a bit more time.

MONTAGNE: Okay, so if everything goes as is hoped, that is a very brief time in bankruptcy, GM gets out of court fast - what are the chances that the company will actually stop losing money and begin to succeed?

LANGFITT: Well, the White House says they think pretty good. They say the company has taken a real axe to its costs and can break even under this new structure, even if US annual auto sales are just 10 million cars. Now right now, it's about nine and a half. Some analysts, though, are skeptical of this. They say, you know, it could take years for the car market to rebound from the recession. And also with cutting all those brands I just mentioned, that means you're going to sell fewer cars. It's going to be interesting to see how this math plays out in the real economy.

MONTAGNE: Okay, all together, government assistance to GM will reach 50 billion dollars. How much might taxpayers get back?

LANGFITT: Well, on the conference call of the White House last night, that a lot of auto reporters had, I asked that question and they wouldn't give an answer. A very interesting point in the call - the government says it doesn't want to own this company for a long time. They said they want to sell shares as soon as, quote, "practicable." Now clearly the government sees that they're in a dicey position owing an American car company. But the administration said, you know, if they want to get out of the company with relative speed, that could mean the taxpayers don't get back as much money. 'Cause of course, if the government sells the stock sooner, it won't have enough time for those shares to rise. So the taxpayer could lose a lot of money in this.

MONTAGNE: And what kind of role are we looking at for the government to play in running General Motors?

LANGFITT: Well, the administration, it will get to name board members. But it says it is going to leave auto executives to run the company day to day. Now one issue the union, the United Auto Workers has raised is, you know, with so much taxpayer money going into this company, they say, GM shouldn't be allowed to import cars made in its Chinese factories, you know, take more jobs from Americans.

But the administration says it's not going to take a position on these kind of commercial issues.

MONTAGNE: Frank, thanks very much.

LANGFITT: Happy to do it, Renee.

MONTAGNE: NPR's Frank Langfitt covers the auto industry.

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Obama: Bankruptcy Plan Will Let GM 'Rise Again'

President Obama speaks about the Chapter 11 bankruptcy filing by General Motors at the White House. i i

President Obama speaks at the White House about General Motors' Chapter 11 bankruptcy filing on Monday. Alex Wong/Getty Images hide caption

itoggle caption Alex Wong/Getty Images
President Obama speaks about the Chapter 11 bankruptcy filing by General Motors at the White House.

President Obama speaks at the White House about General Motors' Chapter 11 bankruptcy filing on Monday.

Alex Wong/Getty Images
The General Motors world headquarters building in Detroit. i i

The General Motors world headquarters building in Detroit. Ironically, the pink monorail passing by features a Pepsi advertisement that reads, "Optimismmmmmmmmmmmm." Camilo Jose Vergara hide caption

itoggle caption Camilo Jose Vergara
The General Motors world headquarters building in Detroit.

The General Motors world headquarters building in Detroit. Ironically, the pink monorail passing by features a Pepsi advertisement that reads, "Optimismmmmmmmmmmmm."

Camilo Jose Vergara

Declaring the government "a reluctant shareholder," President Obama said Monday that pushing General Motors Corp. into bankruptcy was a strategy designed to create a more viable company, rather than one that was a continued drain on taxpayers.

Hours after the automaker filed for Chapter 11 bankruptcy protection in New York, Obama embraced a company restructuring plan that includes closing or idling an additional 14 plants, producing more cars domestically and focusing on the production of fuel-efficient cars.

"Working with my auto task force, GM and its stakeholders have produced a viable, achievable plan that will give this iconic American company a chance to rise again," the president said at a White House news conference. "It's a plan tailored to the realities of today's auto market, a plan that positions GM to move toward profitability, even if it takes longer than expected for our economy to fully recover."

The plan calls for the U.S. government to increase its investment in GM by $30 billion, for a total of $50 billion in aid, giving the government a 60 percent stake in the company, Obama said. Still, he underscored that he has no interest in getting into the auto manufacturing industry.

"What we are not doing, what I have no interest in doing, is running GM," the president said, adding that the company will be run by a private board of directors and management team. "They, and not the government, will call the shots and make the decisions about how to turn this company around."

Founded in 1908, General Motors was the biggest automaker in the world for 77 years, until it was supplanted by Toyota in 2007. Some of GM's best-known cars and trucks were sold under the Chevrolet, GMC, Pontiac and Saturn brands. But in its bankruptcy filing on Monday, the company said it has $172.81 billion in debt and $82.29 billion in assets.

GM's bankruptcy filing is the fourth-largest in U.S. history.

"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," GM President and CEO Fritz Henderson said in a statement on the company's Web site. "The economic crisis has caused enormous disruption in the auto industry, but with it has come the opportunity for us to reinvent our business."

In addition to the $30 billion in new funding that Obama pledged to help the 100-year-old company retool, Canada and Ontario provincial government are lending GM $9.5 billion in exchange for 11.7 percent of the reorganized company's common shares. Canadian Prime Minister Stephen Harper said the move was necessary to protect Canadian jobs. "The Canada-U.S. auto sector is heavily integrated, and a viable GM will provide long-term security for thousands of Canadians who work for suppliers, research and development institutions, and other supporting industries," Harper said in a statement.

In bankruptcy filings, GM said it hopes to launch the "New GM" as a separate and independent company in 60 to 90 days. The company's plans include focusing on four core brands: Chevrolet, Cadillac, Buick and GMC. The company stressed that all warranty, service and customer support will continue without interruption — backed by the U.S. and Canadian governments.

News of the bankruptcy filing was followed by news that General Motors would be dropped from the Dow Jones industrial average after 83 years.

Obama noted that Chrysler has improved its fortunes after filing for bankruptcy protection more than a month ago. Over the weekend, a U.S. bankruptcy judge approved the sale of most of Chrysler's assets to a new company headed by Italian carmaker Fiat.

The president said he believes GM also will emerge a stronger company, but he cautioned that a turnaround could take longer than Chrysler's because it is a bigger and more complex company.

While General Motors' bankruptcy had been expected for weeks, the filing still sent shock waves through Detroit and Michigan. Of the 14 plants that GM intends to close or idle, seven are in Michigan. That means the loss of 9,000 more jobs in a state that has lost hundreds of thousands over the past decade.

More than 100,000 additional jobs in Michigan could also disappear over the next year as the effects of GM and Chrysler bankruptcies ripple through the state's economy — especially the massive auto supply sector.

The White House said the continued downsizing is part of a painful but necessary restructuring process for the automaker. The government said GM will immediately seek authority to continue paying its suppliers while in bankruptcy and that remaining employees will be paid as usual.

In Spring Hill, Tenn., workers lamented the closing of the GM plant where the Saturn brand was developed to help GM compete with fuel-efficient Japanese cars.

The plant produced its last Saturn in 2007, but GM invested $1 billion to retool the facility to assemble the Chevy Traverse. In November, the plant will be idled and about 2,500 employees will be laid off indefinitely

Local union Chairman Mike Herron said workers are disappointed but believe Spring Hill is well-positioned for a comeback.

"Everything in that facility is new," he said. "It's state of the art, and it's ready to go ahead and build new products, so we feel good as we go forward that we have all of our ducks in a row." Herron said Spring Hill will compete with other sites for a new assignment, possibly a new, small car for GM.

Some GM dealers predicted the bankruptcy would be good for sales.

"Good news. Get that 800-pound gorilla off our back," said John Ferraiolo, general manager of Chase Chevrolet in Stockton, Calif. He said the company's problems represented the accumulated effect of poor decisions by GM management that date back to the 1980s.

"They built too many cars for too long. We tried to put a bug in their ear for a long time, quit building so many cars," Ferraiolo said. "And hopefully the company would have learned their lessons and they'll be stronger."

Michigan Rep. Thaddeus McCotter, who represents an area hard hit by closures, said the government must now focus on helping the people in communities where plants are closing.

"It's gonna be a much more difficult slog for Michigan to get through what is clearly an auto apocalypse for us," the Republican congressman said.

From reports by NPR and member stations WDET and WPNL

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