GM Expected to File for Chapter 11 Bankruptcy Protection Today

According to the Wall Street Journal (here) and Bloomberg (here), General Motors Corp. plans to file for Chapter 11 bankruptcy protection today at 8:00am eastern. 56,000 auto workers and 3,600 GM dealerships are asking: What now? The plan is for our government to purchase a majority ownership in the company (around $30 million worth). Ultimately, the government can help GM return to profitability. Or so they hope.

General Motors was founded in 1908 in Flint, MI with its headquarters located in Detroit, MI. In the first 10 years, GM would acquire many brands that we know today, such as Oldsmobile, Cadillac and Pontiac. William C. Durant, who controlled GM early on, also went on to start the Chevrolet Motor car company. At its peak in the 1980s, General Motors employed 349,000 auto workers and had 150 assembly plants. Today, GM is an icon of the American auto industry, and globally GM ranks second only to Toyota. Second place is not so bad once you consider that GM had an impressive 77 years in a row as the world’s largest automaker from 1931 to 2007. In fact, 2008 saw 8.35 million GM cars and trucks sold globally. Of course, those 8.35 million cars and trucks came from all of GM’s brands, such as Buick, Chevrolet, Cadillac, GMC, Hummer, Saab, Saturn, etc…

In our era of economic bailouts, GM has received $15+ billion from the US Treasury Department, so how about another $30 billion? Hopefully our government can turn around this company. And who is going to head the turnaround? According to the Bloomberg article, Al Koch will be named GM’s chief restructuring officer. Apparently he was chief financial officer at Kmart when it filed Ch. 11 back in 2002. I hope he can make the transition to New GM quick and painless.

But even still, as the WSJ article points out, there are a ton of challenges facing GM in the move from Old GM to New GM:

  • When will consumer demand for new cars rebound? New car sales are down 40% since January. Even Toyota is losing money right now.
  • How will GM shed brands such as Pontiac, Saturn, Saab and Hummer? How much will that cost? How much time will it take?
  • Can GM bounce back with new Chief Executive Frederick “Fritz” Henderson?

However, even with all of these variables, bankruptcy protection should allow GM some speedy resolutions to things that typically take months and years:

Bankruptcy protection should allow GM to pull off one of the most expedient downsizings in the industry’s 120-year history. Long hampered by laws, union strife and management practices that kept it from fast action to fix problems, GM plans to eliminate almost all of its debt, halve its U.S. brands, shutter 2,600 dealers and rewrite labor contracts almost overnight.

President Obama and other members of the government have made it much easier for GM to get through all sorts of red tape in a very small amount of time. And in this plan, the government will own 60% of GM’s stock. Plus, the Canadian government is throwing in another $9.5 billion for a 12.5% stake in GM. Thanks, Canada! You fill our hockey teams with great players, and now you are helping out one of our most famous automakers. Thanks!

I wish GM the best, and I can’t wait to see the electric-powered Chevy Volt. Even though it’s priced at $40,000, I’m just excited that a major American car maker is leaping into the electric/hybrid market.