Get ready for Government Motors: General Motors Corp. filed for Chapter 11 bankruptcy early Monday
, marking the humbling of an American icon that once dominated the global car industry and setting up a high-stakes gamble for U.S. taxpayers. The move was once viewed as unthinkable but became inevitable after years of losses and market share declines that were capped by a dramatic plunge in sales in recent months.
The bankruptcy filing marks the climax of a lengthy debate over the auto maker’s future after it sought a bailout from the U.S. government in December to stay alive. In the end, GM couldn’t complete its restructuring out of court and filed for bankruptcy-court protection to get billions more in aid from U.S. taxpayers.
In the end, even $19.4 billion in federal help wasn’t enough to keep the nation’s largest automaker out of bankruptcy. The government will pour another $30 billion into GM to fund operations during its reorganization. The Canadian and Ontario governments are putting in $9.5 billion for a 12.5% stake.
The reorganization faces myriad risks, ranging from legal challenges to the uncertainty of when consumer demand for new cars will rebound. In becoming GM’s new owner, the government is also entering largely unexplored terrain filled with political minefields, notably the possibility of meddling by Congress in the company’s daily operations and business plans.
In bankruptcy, the auto maker will split apart into two companies: a leaner new GM and a so-called old GM, which will include the pieces that will be wound down. GM intends to accomplish the split through a Section 363 sale, which would transfer the new GM assets to an entity owned by the U.S. and Canadian governments, the United Auto Workers union and the company’s unsecured creditors.
The question now facing 56,000 auto workers, 3,600 GM dealers and the Obama administration: Will it work?
____________________
Written by Jean Valjean
Of course it won’t work, not only is the plan idiotic, but the industry itself is on life support. No amount of government money is going to “fix” that problem. But then, nobody ever accused either the car industry or the government of practicality.
Comment by Bob the Commenter — June 3, 2009 @ 8:20 pm