GM poised for bankruptcy, agrees European selloff

GM Europe, which includes German carmaker Opel, may have to shed 10,000 jobs as a result of the deal.
The future of thousands of car industry jobs in Europe remained uncertain Monday as General Motors prepared to file for bankruptcy after reaching a deal to sell off its European operations, including German automaker Opel and UK-based Vauxhall.

GM will file a bankruptcy petition at 8 am ET (12 pm GMT), paving the way for a de facto government takeover, according to a source with direct knowledge of the bankruptcy proceedings. Chapter 11 bankruptcy will aim to help GM emerge with only its more profitable plants, brands, dealerships and contracts. Unprofitable plants, contracts and other liabilities that the company can no longer afford would be left behind. U.S. President Barack Obama will address the American public shortly before noon Monday to explain the rationale for the filing, and his hopes that this is the best route for a turnaround, two officials close to the situation told CNN. The day “will rank as another historic day for the company — the end of an old General Motors and the beginning of a new one,” the administration stated in documents released Sunday. On Saturday it was announced that a Canadian parts supplier and a Russian bank had finally reached an agreement to take control of GM’s European assets, which include Opel and Vauxhall. Watch more about the bankruptcy move ยป Under the terms of the deal, Magna International will take a 20 percent stake in GM Europe, Russia’s biggest bank, Sberbank, will own a 35 percent share, Opel employees will have 10 percent, while General Motors will retain a 35-percent stake. The German government, which has led the negotiations, will provide a bridge loan to keep GM Europe operating in the short term. German Foreign Minister Frank-Walter Steinmeier described the deal as a “responsible solution” that would preserve the highest number of jobs. Magna warned during negotiations that it would have to cut about 10,000 jobs, from GM Europe’s 55,000-strong workforce. About 2,000 of the job cuts would be in Germany, Magna has said. But a top company official tried to reassure the Germans that it would try to protect the company as much as possible.

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“We will, and I want to stress that again, preserve all the German Opel locations,” said Magna co-Chief Executive Siegfried Wolf. Meanwhile, Britain’s Business Secretary Peter Mandelson said Sunday that Magna’s bosses had given a commitment to continue Vauxhall production in the UK, but had given no details as to how long or whether job losses would follow. He told the BBC: “I have, in the last 24 hours, spoken again to the senior executives of General Motors in Europe and again I have got their commitment reaffirmed to me as I did previously in the previous week with Magna that their commitment to Vauxhall production continuing in the United Kingdom is firm. But we have got now to pin down specific plans and specific implications for jobs.” Vauxhall employs 5,500 people in England at its plants in Luton and Ellesmere Port. The rescue of GM in the United States is being led by an unlikely coalition of the U.S. and Canadian governments and the company’s employees and creditors. The Obama administration will commit another $30 billion on top of the $19.4 billion it has already given GM to cover its losses and fund its operations. The U.S. government will get a 60 percent equity stake in the new company after restructuring, as well as $8.8 billion in debt and preferred stock. A trust established to fund health care benefits for retirees of the United Auto Workers union will own 17.5 percent, and get the right to purchase another 2.5 percent of the company. The governments of Canada and Ontario will lend $9.5 billion and receive 12 percent of the equity in the new GM. Finally, bondholders who lent GM $27 billion will forgo much of what they are owed and instead get a 10 percent share of the new company plus the right to secure another 15 percent. In addition, investors who own 54 percent of those bonds have agreed to not fight plans for a quick bankruptcy. The deal could make it easier for GM to restructure by neutralizing some of the opposition to a bankruptcy filing. But for GM, the bankruptcy filing will be just the beginning of a major overhaul aimed at creating a much smaller company. As part of the reorganization, GM is expected to cut 20,000 jobs and close about a dozen plants by the end of 2010. The company has already said it will slash 40 percent of its network of 6,000 retail dealerships by next year and drop four of its brands — Hummer, Saab, Saturn and Pontiac. The impact of GM’s bankruptcy, which follows a Chapter 11 filing by Chrysler on April 30, will ripple across the nation to dealers, suppliers and other businesses large and small that work in the sector. The company, once the country’s largest private-sector employer, has only a fraction of its former staff. Its 80,000 hourly and salaried U.S. employees are half the number it had as recently as 2001. Nearly 500,000 U.S. retirees, as well as more than 150,000 of their family members, depend on GM health insurance and pension plans. Retirees will see cuts in their health care coverage, although the company’s underfunded pension plans are not expected to be affected by a bankruptcy filing. In addition, some 300,000 employees at GM dealerships will be affected, as well as hundreds of thousands of workers at auto parts makers and other GM suppliers whose jobs depend on the company’s survival.

The government takeover — even one that aims to be temporary — marks a dramatic turn for century-old GM, which has been brought to a whisper of insolvency by plummeting auto sales and huge losses. General Motors has reported losses of more than $90 billion since 2005, while its share of the U.S. market has dropped to 19 percent from more than 40 percent in 1980.