UpdateBankruptcy filing a 'defining moment' - GM

01 June 2009 18:51  [Source: ICIS news]

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HOUSTON (ICIS news)--Car giant General Motors (GM) filed for Chapter 11 bankruptcy protection, calling the US government-led plan to restructure to 100 year-old company a "defining moment", the US company said on Monday.

The move represents the third largest bankruptcy in US history, following Lehman Brothers' collapse and the failure of telecoms group WorldCom.

“Today marks a defining moment in the history of GM,” company CEO Fritz Henderson said in a press conference. “Our preference was to create a new GM through other paths, but what was and is most important is to get to the destination and get there fast.

“When we exit the process and the new GM comes forward, you’ll see an emphasis on products, customers and reinventing technology,” he added. “It will be a very different approach that addresses these problems in a new way.”

None of the company’s operations in Europe, Latin America and the Asia-Pacific region were included in the bankruptcy filing.

The Obama administration on Sunday said it would pump in another $30bn (€21bn) - on top of the previous $20bn - and take a 60% stake in the automaker to stop it from being broken up.

It was reported that the United Auto Workers (UAW) union would take 17.5% in shares and the governments of Canada and Ontario would lend $9.5bn and get a 12% stake and $1.7bn debt in return.

On Monday, President Obama emphasised the government’s continuing commitment to supporting the ailing domestic automotives sector, a crucial end market for many plastics and chemicals.

He described the US as a “reluctant” owner of GM, and looked to quell talk that the government would have an overly active role in GM’s restructuring.

“Our goal is to get GM on its feet, take a hands-off approach and get out quickly,” Obama said.

However, Henderson warned that the government’s exit timeline would likely take years, not months, because of the substantial block of shares now owned by the US.

“The key now [for GM] is to get out of bankruptcy as quickly as possible,” said John McEleney, chairman of the National Automobile Dealers Association (NADA).

Obama said that Chrysler, which filed for bankruptcy protection on 30 April, would likely exit bankruptcy status within the next few days. But GM is expected to remain under bankruptcy protection longer because it is a larger and more complex company, Obama said.

GM also announced numerous plant and dealership closures on Monday as part of its restructuring plan, which includes more than 20,000 job cuts by the end of 2010.

The company said it would close six manufacturing plants in 2009, seven more in 2010, and another in 2011. Also, three service and parts distributions centres will be closed at the end of 2009.

That would mean even less demand for the chemicals and derivatives that go into auto manufacturing, and could place fresh pressure on an already financially fragile parts supply chain.

Within chemicals, some plastics resins makers said on Monday that US automotive sales have been down so long that the bankruptcy would not change much.

“It’s already been baked into our plans,” one acrylonitrile-butadiene-styrene (ABS) supplier said. “Automotive in general has already been down, so everyone’s adjusted accordingly.”

Likewise, polyurethane (PU) foam producers said their market had already adjusted as well.

“It will probably be business as usual because the drop in demand has already occurred,” a PU producer said. “If you look back at automobile sales in the US, sales today are about 20% of sales in 2005.”

In addition, CNN reported that GM would cut more than 2,000 of the company’s 6,000 US dealerships by the end of 2010.

“NADA does not agree with mass cuts in the dealer network,” McEleney said. “By cutting its dealers, GM is cutting its own customer base. In addition, fewer dealerships mean less convenience and less competition and more unemployment.

“Therefore, drastic closures of dealerships on the scale that GM announced are bad for the economy, bad for GM and bad for the consumer,” he added.

GM filed for bankruptcy at the US Bankruptcy Court in the Southern District of New York.

Meanwhile, Germany has agreed a deal with Canadian car parts maker Magna International to take over Opel, part of the European wing of GM. The German government is expected to provide an immediate loan facility of €1.5bn.

($1 = €0.71)

Additional reporting by Mark Watts, Ben Lefebvre and Leela Landress

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