GM files for bankruptcy, causes local economy concern

Tuesday, June 2, 2009 | 12:01 a.m. CDT; updated 2:07 p.m. CDT, Tuesday, June 2, 2009
Saturn of Columbia, part of Lou Fusz Auto Group, was open for business as usual on Monday. Saturn, which is owned by General Motors, filed for bankruptcy Monday.

Customers and car dealers in Columbia faced frustration and uncertainty Monday after General Motors filed for Chapter 11 bankruptcy protection.

GM announced it would lay off more than 21,000 U.S. employees in the next 12 months, close nine plants, idle three more and remove 2,600 dealerships. The company plans to move forward with four core brands — Chevrolet, Cadillac, Buick and GMC — and cut about 500 dealerships that market the Saturn, Hummer and Saab brands.


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Columbia has a Saturn dealership on Vandiver Drive, and potential buyers were anxious Monday about its fate. It is unclear whether GM plans to discontinue Saturn or sell it to another company. 

Columbia resident Marcia Barclay has taken a Saturn Outlook on three recent test-drives, but said Monday she has become concerned about the car's future.

“I love the way it drives, but I’m not considering a Saturn," Barclay said. "I have no confidence in them right now. I have to see what would happen with the dealership. I’m afraid.”

Jennifer McKenzie of Columbia was taking her 2005 Saturn Vue in for service Monday but wondered about service contracts.

“I have a whole lot of worries about the warranty,” said McKenzie, who had intended for Saturn to remain the family vehicle. 

“It’s a shame,” she said. “I have no trust in Saturn now.”

At Saturn of Columbia, James Sullivan, an independent sales promoter not affiliated with Saturn, said Monday that he is not worried.

“There will still always be cars," he said. "The industry always comes back from a recession; it's just a matter of time." Sullivan said the dealership sold about 20 cars in the past week.

The U.S. Treasury Department has pledged to fully back warranties if GM is unable to do so. Everyone buying a new GM will receive warranty coverage as well, the company has said.

Saturn vehicles will still be covered under the GM Total Confidence Program, which includes product protection, family protection (OnStar), vehicle value protection and payment protection. 

As of May 1, GM dropped coverage of Saab, Cadillac and Hummer vehicles under the Total Confidence Program. 

Brandy Christy of Lake Ozark owns a Hummer H3 and said she intends to keep it.  She trusts the Hummer to keep her safe on the road due to its robust size, she said. It also has comparable gas mileage of other SUVs and handles well in poor weather, she added.

“These cars are a better deal than people think,” Christy said. 

GM's bankruptcy filing is the fourth-largest in U.S. history and the largest for an industrial company. GM auto sales fell 45 percent over last year, compared to a decrease of 37 percent in total U.S. auto sales.

The bankruptcy action is part of the Obama administration's plan to shrink the automaker to a sustainable size and give a majority ownership stake to the federal government.

As it reorganizes, the fallen icon of American industry will rely on $30 billion of additional financial assistance from the Treasury Department and $9.5 billion from Canada. That's on top of about $20 billion in taxpayer money GM already has received in the form of low-interest loans.

The Detroit automaker said plants will continue to make cars and trucks, and both essential suppliers and GM's 235,000 employees worldwide will continue to be paid. GMAC Financial Services said in a statement that it will continues to provide automotive financing to GM and Chrysler dealers and customers, and the federal Pension Benefit Guaranty Corp. said workers' pension plans remain safe.

GM will follow a similar course taken by s0maller rival Chrysler, which filed for Chapter 11 protection on April 30. A judge on Sunday gave Chrysler approval to sell most of its assets to Italy's Fiat, moving the U.S. automaker closer to a quick exit from court protection, possibly this week.

The GM plan is for the federal government to take a 60 percent ownership stake in the reorganized company. The Canadian government would take 12.5 percent, with the United Auto Workers getting a 17.5 percent share and unsecured bondholders receiving 10 percent. Existing GM shareholders are expected to be wiped out.

The government's partial stake in GM comes on top of a far smaller ownership of Chrysler, as well as significant federal equity in banks, the AIG insurance giant and two mortgage industry titans — all victims of an economic crisis unrivaled since the Great Depression.

But President Barack Obama said the actions were part of a "viable, achievable plan that will give this iconic company a chance to rise again."

The president said the government would refrain from playing a management role in all but the most critical areas.

"Our goal is to help GM get back on its feet ... and get out quickly," he said.

GM said it expects the bankruptcy court process to last 60 to 90 days. If successful, GM will emerge as a leaner company with a smaller work force, fewer plants and a trimmed dealership network.

The Pontiac, Mich., and Wilmington, Del., assembly plants will close this year, while plants in Spring Hill, Tenn., and Orion, Mich., will shut down production but remain on standby. One of the idled plants, GM's Janesville, Wis., plant that closed in April, will be retooled to build a small car that GM had originally planned to build in China.

Seven powertrain and parts-stamping plants will be closed starting in June 2010, while an additional stamping plant will be idled but remain in a standby capacity.

Ford Motor Co., the third of the one-time Big Three, has also been stung hard by plunging sales of cars and trucks, but it avoided bankruptcy by mortgaging all of its assets in 2006 to borrow roughly $25 billion, giving it a financial cushion GM and Chrysler lacked.

Ford issued a statement Monday saying it "remains absolutely committed to continuing to make progress on our transformation plan without accessing emergency taxpayer assistance from the U.S. government."

The bankruptcy filing represents a dramatic downfall for GM, which was founded in 1908 by William C. Durant, who brought several car companies under one roof and developed a strategy of "a car for every purse and purpose." Longtime leader Alfred P. Sloan built the global automaker into a corporate icon.

GM first sought help from the Bush administration and Congress last year as it was in the midst of being staggered by $30.9 billion in losses and seeing its cash resources shrink by more than $19 billion.

Consumers, worried about the economy and the future of GM, shied away from the company's cars and trucks this year even after President George W. Bush promised loans and Obama followed through with billions more in assistance — plus a stiff set of new requirements GM was ordered to meet.

When GM failed to meet the requirements by a March 31 deadline, Obama forced out CEO Rick Wagoner and replaced him with Fritz Henderson.

Wagoner served at the helm since 2000 and was the face of GM when he first flew on a company jet to ask Congress for aid. After a firestorm of negative publicity, Wagoner rode in a hybrid Chevrolet Malibu from Detroit to Washington for a second set of withering questions before lawmakers.

But that amounted to only a sideshow as the automaker's financial position worsened. Its revenues plunged almost 50 percent in the quarter that ended March 30, and it racked up another $6 billion in losses.

The Henderson-led GM faced a government-imposed June 1 deadline to restructure, slash costs and modify contracts with its union and dealers. But meeting most of those demands, plus a late agreement by many bondholders to swap the $27 billion in debt they are owed for shares in a new GM, were not enough to prevent the court filing.

Some bondholders might still fight GM's reorganization plan, but the company and Treasury hope the 54 percent who supported the debt-for-equity offer will convince the judge that its a fair deal.

"There is no other sale, or other potential purchasers, present or on the horizon," Henderson said in an affidavit filed Monday in bankruptcy court. "The only other alternative is the liquidation of the debtors' assets that would substantially diminish the value of GM's business and assets, throw hundreds of thousands of persons out of work and cause the termination of health benefits and jeopardize retirement benefits for current and former employees and their families."

It was an all-out sprint to Monday's filing, as GM quickly sought to nail down deals with its union, bondholders and sell off brands along with most of its Opel operations in Europe to appear in court with a near-complete plan to quickly emerge with a chance to become profitable.

It moves billions in retiree health care costs off GM's books. In exchange for its ownership stake, $6.5 billion of interest-bearing preferred shares, and a $2.5 billion note, the trust will take on responsibility for all health care costs for retirees starting next year. Higher health care costs alone accounted for a $1,500-per-car cost gap between GM and Japanese vehicles.

GM will offer buyouts and early retirement packages to all of its 62,000 hourly workers to shrink employment. The company also has about 29,000 white-collar employees, according to court documents. In contrast, GM employed 618,000 Americans in 1979, more than any other company.

GM earlier outlined a plan to cut about 1,100 of its dealers by the end of 2010.

A person familiar with GM's plans said the automaker has no plans to accelerate the dealership cuts that were already announced. The person spoke on condition of anonymity because the details have not been made public.

The person said dealerships that the company is planning to terminate began receiving wind-down agreements Monday. Those agreements, if dealers sign them, will allow targeted dealers to receive compensation and support from GM as they close down their franchises and sell off inventory.

But just cutting labor and overhead costs won't be enough to save the company. It also has been working to streamline its engineering and design, as well as standardize many parts so they can go into multiple models.

Cassandra Leap, Jessica Barnett and John Springli contributed to this story.




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