Those five stark words have been long been in the making. Since late 2008, GM has been subsisting on government dollars. To this point, $19.4 billion of them. After being rocked by the one-two punch of first skyrocketing gas prices and then a plummeting world economy, 100 year old automotive giant General Motors has finally fallen to the canvas.
To be sure, GM’s financial health has been weak for years; mountains of debt, dependence on high profit margin trucks and SUVs, losing money on every small car sold, and paying unsustainably high legacy costs to retired autoworkers. Falling behind to Toyota on hybrid development certainly didn’t help either. They have lost nearly $90 billion since 2005. There was really never a way out of this outcome despite all the political drama of the last seven months.
While it is true that GM management had made a lot of bad decisions, I still believe greenlighting the Chevy Volt was the best decision GM ever made.
Today at 8:00 AM, GM filed for section 363 Chapter 11 bankruptcy in the U.S. Bankruptcy Court in New York City. It is the fourth-largest bankruptcy in U.S. history based the company’s $91 billion in assets, and the largest of an industrial entity. The largest bankruptcy by assets was the 2008 filing by Lehman Brothers at $691 billion.
It was agreed two months ago by the Task Force on Autos and President Obama that if GM couldn’t successfully restructure its debt by June 1st, it would enter into bankruptcy protection. GM had made a lot of progress, but not enough. The UAW has agreed to accept equity for its retiree healthcare debt, and the majority bondholders have accepted a debt for equity deal.
Of course this really isn’t the end of GM, but a new beginning.
Court proceedings are hoped to be extremely swift, GM will shed off all of its debt and bad assets in the so-called 363 sale. Within 60 to 90 days a new GM is expected to emerge replete with all of the best performing assets, no debt, $30 billion in fresh government funding and a bright future. The new GM would be 60% owned by the US Treasury, 17.5% owned by the UAW, 12% by the Canadian government and 10% by the bondholders.
The new lean GM is expected to breakeven or be profitable at 10 million vehilce sales per year, which is the current rate. Previously they could only be profitable at 16 million annual car sales. Factories will be closed, jobs lost, brands eliminated, and dealerships shuttered but in the end the balance sheet will be clean.
The Chevy Volt program shall remain intact and not derailed in any way. The deadline for the November 2010 Volt launch remains on track.
And once this massive event is behind us, we can one again focus on the mission at hand, driving without the use of oil.
Its hard to believe this blog that I started as a spark of hope for a world without oil in January 2007 has followed this remarkable and tumultuous drama down so far as to the pit of bankruptcy, and soon beyond.
GM-Volt.com shall carry on uninterrupted.
In fact, I will be back at GM headquarters next week for a new round of news, facts, and adventure.
Onwards and upwards my friends. Never give up hope. The Volt shall rise as the Phoenix from the ashes.
Below is GM CEO Fritz Henderson giving a live conference on June 1:
