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Don Gonyea Reports On White House Role In The Restructuring Plan On All Things Considered.

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Automaker GM Files For Bankruptcy

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Automaker GM Files For Bankruptcy

Don Gonyea Reports On White House Role In The Restructuring Plan On All Things Considered.

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Automaker GM filed for bankruptcy Monday and the Obama administration said it will provide another $30 billion to keep the company operating, making the federal government the company's majority shareholder. President Obama said his administration's goal is to get GM back on its feet and to get the company out of bankruptcy quickly.

ROBERT SIEGEL, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

MELISSA BLOCK, host:

And I'm Melissa Block.

President Obama said today that GM has a credible plan that is full of promise - and that GM can't achieve that promise alone. General Motors bankruptcy filing this morning as an unprecedented moment - the humbling of one of America's most iconic companies.

SIEGEL: And the bankruptcy is the result of a carefully crafted agreement with the White House. The plan envisions a new GM, much smaller, with fewer divisions, fewer plants and far fewer workers. The company will be getting another $30 billion from the government. And Mr. Obama said the government will be acting as a reluctant shareholder.

NPR's Don Gonyea reports from the White House.

DON GONYEA: It is a sobering thought: General Motors in bankruptcy. But the president today spoke of something that has been anything but guaranteed for GM: a future.

President BARACK OBAMA: Working with my auto taskforce, GM and its stakeholders have produced a viable, achievable plan that will give this iconic American company a chance to rise again.

GONYEA: This was the third time the president has stood before cameras to discuss the troubled U.S. car business. Two months ago, it was to say GM and Chrysler had not done enough to warrant further government help. On that day, he gave each more time. Then a month ago, the president said Chrysler would survive, but only after going through bankruptcy. Today was GM's turn. In fact, today's announcement about GM actually included good news from Chrysler - that it is about to emerge from bankruptcy - with a new partner, the Italian automaker Fiat.

Pres. OBAMA: Many experts said that a quick, surgical bankruptcy was impossible. They were wrong. Others predicted that Chrysler's decision to enter bankruptcy would lead to an immediate collapse in consumer confidence that would send car sales over a cliff - they were wrong, as well.

GONYEA: The president says GM can follow the same path. But Chrysler and GM are very different. GM is much larger. It will not enter into a forced marriage with another company. Instead, it is slashing brands: Pontiac, Saturn, Hummer and Saab. GM will now sell cars under just four divisions: Chevrolet, Buick, Cadillac and GMC. Here's company chairman Fritz Henderson.

Mr. FRITZ HENDERSON (Chairman, GM): We'll have fewer nameplates, which allows us to basically focus on getting every one of those nameplates right. In this case, I think fewer, more focused and better is a much better approach.

GONYEA: GM also announced that it is closing or temporarily idling another dozen plants. Three of those factories are in the suburban Detroit district of Democratic Congressman Gary Peters.

Representative GARY PETERS (Democrat, Michigan): It is a very tough day for all of us in Michigan.

GONYEA: Peters does say the news that Chrysler seems to be surviving bankruptcy offers some hope. Still…

Rep. PETERS: Bottom line, we still are losing three plants here in my county. People have to realize that this is not just about General Motors or Chrysler -just that people aren't buying cars, period. And until automobiles start returning to normal levels, our economy here is going to continue to be decimated.

GONYEA: The additional $30 billion the president has announced for GM is not a loan. It actually gives the U.S. the majority stake in the automaker by far -bringing the total U.S. aide to the company to more than 50 billion.

Pres. OBAMA: Now, let me talk about this. I recognize that this may give some Americans pause.

GONYEA: But the president stressed that the goal is not to run GM, that it will be run by a private board of directors and management team that they - and not the government - will make the decisions about how to turn the company around. The president did say that thanks to the U.S. investment, a restructured GM will now have breathing room - allowing it to, again, be an engine of the U.S. economy.

Pres. OBAMA: And when that happens, we can truly say that what is good for General Motors and all who work there is good for the United States of America.

GONYEA: Still, the risks are there, not just for GM, but politically for the White House, as well.

Don Gonyea, NPR News, the White House.

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Q&A: What's At Stake For The New GM?

GM headquarters i

With an additional $30 billion investment, the U.S. government — and taxpayers — have become the majority owner of the new GM. Bill Pugliano/Getty Images hide caption

toggle caption Bill Pugliano/Getty Images
GM headquarters

With an additional $30 billion investment, the U.S. government — and taxpayers — have become the majority owner of the new GM.

Bill Pugliano/Getty Images

For decades, General Motors has been an icon of American industry. Its decision on Monday to file for bankruptcy protection marks a humbling moment for the industrial giant.

With the U.S. government agreeing to become the majority owner, the hope is that a new, healthier version of the company will emerge. Here, a look at what the future holds for the new GM.

What's significant about this bankruptcy filing?

U.S. taxpayers will become majority owners of the humbled car giant, providing an additional $30 billion in assistance. In total, GM will have received nearly $50 billion in federal loans.

As part of GM's restructuring, the new company's financial liabilities will be slashed by more than 50 percent.

How soon will GM emerge from bankruptcy?

The government says it expects GM will need 60 to 90 days to emerge from bankruptcy protection as a new, slimmed-down company. That time frame appears possible, given the month or so that it will take Chrysler to emerge from Chapter 11 bankruptcy protection. (On Sunday night, a federal bankruptcy judge approved Chrylser's plan to to sell the bulk of its assets to Italy's Fiat.)

What might a smaller GM look like?

As part of cost-reducing measures, GM will sell off Saab, Saturn, Hummer and Pontiac in bankruptcy court. The new GM will emerge from bankruptcy with its stronger brands including Chevy, Cadillac, Buick and GMC.

The new GM will also be a lot smaller in terms of its employees. GM has already said that restructuring — in or outside of bankruptcy protection — will reduce its U.S. work force from 91,000 total workers at the end of 2008 to 71,250 by the close of 2009. On Monday, a GM spokesman said that the company is likely to lose an additional 4,000 salaried employees owing to layoffs, sale of brands, retirement and attrition.

What role will the Obama administration play in managing GM?

The U.S. government will become a majority owner of the new GM: It will receive a 60 percent ownership stake in the new company, along with $8.8 billion in debt and preferred stock.

"We are acting as reluctant shareholders," President Obama said Monday, "because that is the only way to help GM succeed." The administration's goal, he said, was to get GM back on its feet and to exit from the ownership role quickly.

Canada and the province of Ontario are also lending $9.5 billion to the company in exchange for a 12 percent ownership stake.

Will the U.S. government be involved in day-to-day operations?

The Obama administration says it will stay out of the day-to-day management of the company. That said, the U.S. will have the power to choose most of the board of directors; Canada and Ontario will be able to pick one of the directors.

Still, critics such as House Republican Leader John Boehner of Ohio questioned whether the U.S. government should be taking on such an unprecedented role in the future of GM. "Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability?" Boehner said Monday. "It's time for the administration to fully explain what the exit strategy is to get the U.S. government out of the board room once and for all."

Is taxpayer money at risk in this arrangement?

The Obama administration says that it does not want to hold its equity stake in GM "any longer than necessary" and that it will sell its shares as soon as "practicable."

If the government sells its shares before GM's stock begins to rise, U.S. taxpayers could lose some of the nearly $50 billion that has already been invested in the company.

James Angel, an associate professor at Georgetown University's McDonough School of Business, estimates that the government will hold its shares for three to five years.

"I think they will be very tempted to wait for the stock to rise to the point where they can say, 'Hey, we made a profit on this,' " he says.

Will GM need to draw on more taxpayer money in the future?

That's the big question.

The Treasury Department hopes the $30 billion will provide a "permanent resolution" for the company, a senior government official said Sunday night. The official said that Treasury doesn't anticipate needing to provide any additional financial assistance to GM.

The White House said that a slimmed-down GM will have a stronger chance of returning to profitability. As a larger firm, GM needed to sell about 16 million vehicles annually to break even. The new GM will need to hit a goal of about 10 million annual vehicle sales — only about a half-million more vehicles than it currently sells.

What does this mean for consumers who own a GM vehicle?

All warranties will be honored by the new GM. There is a question mark, however, for consumers who may want to purchase a Saturn, Saab, Hummer or Pontiac in the next year or two, since GM will sell off these companies as part of the bankruptcy proceedings.

What does it mean for the existing dealers and suppliers?

It's not entirely clear yet. GM says that it plans to close at least 14 factories and parts centers throughout the U.S. by the end of 2011, and this will undoubtedly have some effect on the industry at large.

Overall, the company said it expects to retain just 33 of its U.S. facilities by 2012 — down from the 47 it had at the end of 2008.

The White House said it expects that any dealers that are shut down will have 18 months to wind down their operations.

With additional reporting by Frank Langfitt

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