DETROIT — General Motors’ bankruptcy filing Monday will do what its past chief executives could not — cleanse the century-old company of burdensome labor costs, unprofitable old factories and a boatload of debt.
The price was one that no GM chief was willing to pay until now. The slimmed-down company will be a ward of the U.S. government, 60 percent owned by taxpayers, with half of its eight brands just memories.
Industry analysts, GM executives and even President Barack Obama say GM now has the cost structure to compete in the global automotive market and one day return to profits. The company says it can make money even if U.S. auto sales stay weak.
The question is whether GM can generate enough profit to free itself of government control before the president or Congress rethink promises not to muck around in day-to-day management of the company.
Here’s what the company’s filing means for various groups:
Car buyers
President Barack Obama Ârepeated Monday that the federal government would back the warranties of GM and Chrysler vehicles.
“I want to remind everyone that if you are considering buying a GM car during this period of restructuring, your warranties will be safe and government-backed,” Obama said.
Consumers interested in GM vehicles will have a choice between Cadillac, Chevrolet, GMC trucks and Buick. The company has already said it will dispose of its Pontiac brand and has been searching for buyers for its Hummer, Saab and Saturn divisions.
As for financing needs, car buyers will still be able to turn to GM’s former financing arm, GMAC LLC. GMAC last month received another cash injection of $7.5 billion from the U.S. government and has recently taken over financing duties for Chrysler.
In the long term, buyers should see a lineup more weighted toward smaller, more fuel-efficient cars rather than trucks and SUVs.
Factory workers
GM and the United Auto Workers union have struck a new agreement aimed at reducing the automaker’s staggering labor costs. It freezes wages, ends bonuses, eliminates certain work rules and requires binding arbitration for the next contract if a deal can’t be reached. The UAW has said the cuts would save GM $1.2 billion to $1.3 billion a year.
The UAW’s trust that will take over retirees’ health care costs will receive a 17.5 percent stake in the restructured company and have the option to buy an additional 2.5 percent stake at a discount once the company reaches a certain value. To help fund its health care costs, the union will also get $6.5 billion in preferred shares that pay 9 percent interest and a $2.5 billion note.
On Monday, GM announced it will permanently close nine more plants and idle three others to trim production and labor costs under bankruptcy protection. The closures will displace 18,000 to 20,000 GM employees, the company said.
Dealers
GM plans to reduce locations in its dealership network by 1,100 — or one in five — by not renewing contracts that expire next year. GM said the closures aren’t final. The automaker gave the targeted dealerships — which it has not named — until the end of May to object to the decision.
However, the dealership closures could be greatly accelerated in bankruptcy protection. One of the benefits of Chapter 11 for GM is that it allows the automaker to throw out the franchise agreements that make it difficult to close dealerships. All it takes is a judge’s approval.
Suppliers
The filing will deal another serious blow to parts suppliers.
Delphi Corp., GM’s principal supplier, is owed more than $110 million, according to a list of creditors in the bankruptcy filing, followed by suppliers such as Robert Bosch GmbH, Lear Corp. and Johnson Controls Inc.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
