AT A GLANCE: GM Prepares For Bankruptcy Protection
THE NEWS: General Motors Corp. (GM) plans to file for Chapter 11
bankruptcy protection in the southern district of New York at 8:00
a.m. (1200 GMT) on June 1. It will be the largest-ever industrial
filing in the U.S., with the pre-packaged plan leaving the federal
government in control of a downsized "New GM" facing the weakest
auto market conditions in a generation. The Obama administration on
Sunday said the government would provide an additional $30 billion
in financing to GM in return for 60% equity in the new company and
$8.8 billion in debt and preferred stock. The U.S. administration's
auto task force has already strong-armed provisional backing from a
majority of bondholders and unions representing workers in the U.S.
and Canada, moves likely to ease its passage through court. The
task force will also install restructuring expert Al Koch and a
team from AlixPartners LLP to work alongside GM CEO Fritz
Henderson, while the majority of the company's board will also be
replaced.
WHAT HAPPENS NEXT?: A bankruptcy filing by the world's
second-largest auto maker will have repercussions across the global
auto sector and, by providing an acid test of the administration's
industrial policy, reverberate in broader financial markets. The
judge appointed to oversee the case in a court already handling the
bankruptcy of Chrysler LLC is viewed as crucial in determining
whether the task force plan to have GM exit protection within about
90 days is, in fact, realized. While many elements have been
"pre-packaged," the treatment of bondholders could still see
challenges to the plan in court, especially from the large retail
base. Unsecured creditors are slated to receive 10% of the common
equity in the new GM, versus 17.5% for the health fund run by the
United Auto Workers union, with the balance held by the
government.
The most crucial question for GM is how it plans to accelerate
the operational turnaround and revise the planning forecasts
rejected by the task force at the end of March. The operational
plans will have a knock-on effect for the distressed auto supplier
sector, which supplies around 70% of the content by value to
manufacturers. The slide in global vehicle sales, most notably in
the U.S., has left many in, or on the brink of, bankruptcy, or
already under court protection. The government on Sunday reiterated
it plans to support auto suppliers. GM said it will keep plant
running through the bankruptcy.
Other issues include the fate of GM's pension obligations and
the role of the Pension Benefit Guaranty Corp.; the relationship of
GM and its European operations following a tentative deal to sell a
majority stake to a consortium led by parts maker Magna
International Inc. (MGA); treatment of creditors to Delphi Corp.,
GM's former parts unit; and the cost of culling its dealer network
and the higher number of employee buyouts outlined last week.
THE MARKETPLACE: U.S. light vehicle sales are expected to fall
to around 10 million this year from 13.1 million in 2008 and 16.1
million in 2006. With GM and Chrysler both cutting back production
further, rivals are stepping up output to take advantage of
negative customer perceptions of bankrupt auto makers. U.S. auto
production is expected to be higher in the second half of the year,
reversing its usual historical pattern. May auto sales data is
released June 2.
For more Dow Jones coverage, please see:
GM To File For Bankruptcy Monday - Obama Officials
White House: Obama To Address Nation On GM Monday Morning
GM Schedules Press Conference To Follow Pres Obama's Remarks
WSJ(6/1) Remnants Of `Old GM' To Linger
WSJ(6/1) GM Fallout To Reach Consumers
WSJ(6/1) Potential Conflicts Abound In Government's GM Role
'New GM' Products Face Triple Market Challenge
GM Filing Will Trigger Settlement Of $3 Bln In CDS Deals
WSJA(6/1) Gains In A GM Bankruptcy
-By Doug Cameron, Dow Jones Newswires; 312-750-4135;
doug.cameron@dowjones.com