GM Files Voluntary Chapter 11; Agreements with US Treasury and Canada; “New GM” Expected in 60-90 Days
General Motors Corp. reached agreements with the US Treasury and the governments of Canada and Ontario for the creation of a smaller, self-sustaining “New GM”. Pending approvals, the New GM is expected to launch in about 60 to 90 days as a separate and independent company from the current GM.
The New GM will incorporate only the “best brands” and operations, and benefit from shedding much of the older debt burden and operating cost structure. The New GM will incorporate the terms of GM’s recent agreements with the United Auto Workers (UAW) and Canadian Auto Workers (CAW) unions and will be led by GM’s current management team.
|GM Manufacturing Plans|
|Plant||Status / Timing|
|Orion, Mich.||Standby: Sep 2009|
|Pontiac, Mich.||Close: Oct 2009|
|Spring Hill, Tenn.||Standby: Nov 2009|
|Wilmington, Del.||Close: Jul 2009|
|Grand Rapids, Mich.||Close: Jun 2009*|
|Indianapolis, Ind.||Close: Dec 2011|
|Mansfield, Ohio||Close: Jun 2010|
|Pontiac, Mich.||Standby: Dec 2010|
|Livonia Engine, Mich.||Close: Jun 2010|
|Flint North Components, Mich.||Close: Dec 2010|
|Willow Run Site, Mich.||Close: Dec 2010|
|Parma Components, Ohio||Close: Dec 2010|
|Fredericksburg Components, Virg.||Close: Dec 2010|
|Massena Castings, N.Y.||Closed: May 2009*|
| Service & Parts Operations (SPO) |
Warehousing & Parts Distribution Centers
|Boston, Mass.||Close: 31 Dec 2009|
|Jacksonville, Fla.||Close: 31 Dec 2009|
|Columbus, Ohio||Close: 31 Dec 2009|
|* previously announced|
The New GM will:
Focus on four core brands in the US—Chevrolet, Cadillac, Buick and GMC—with fewer nameplates and a more competitive level of marketing support per brand.
Reduce GM’s total number of assembly, powertrain and stamping facilities in the US from 47 in 2008 to 34 by the end of 2010 and 33 by 2012. These totals reflect GM’s recently announced plans to build a future small car in the US. (Earlier post.) Under this plan, the New GM will achieve full capacity utilization of its assembly operations in 2011, two years ahead of what was scheduled in its 17 Feb. viability plan submission.
Close the gap in active worker labor costs compared with transplant auto manufacturers.
Feature lower structural costs enabling its North American region to break even (on an adjusted EBIT basis) at a US total industry volume of approximately 10 million vehicles. This rate is substantially below the 15 to 17 million annual vehicle sales rates recorded from 1995 through 2007.
Achieve its lower structural costs in part by further reducing 2009 salaried employment in North America from its year-end total of 35,100 to approximately 27,200, and continuing to improve its balance sheet by reducing retiree benefits for salaried retirees and non-UAW hourly retirees.
Reduce its dealers to approximately 3,600 from the current 5,969.
GM also reaffirmed its commitment to improve the fuel efficiency of its vehicle fleet, meet or exceed new federal fuel economy and emissions regulations, and push ahead with advanced propulsion technology. GM will launch the Chevrolet Volt extended range electric vehicle in 2010, expects to have 14 hybrid models in production by 2012, and will have 65% of vehicles alternative-fuel capable by 2014.
The New GM will have a number of key vehicle launches in 2009 and 2010, including:
- Chevrolet Camaro, with highway fuel economy of up to 29 mpg
- An all-new Buick LaCrosse premium midsize sedan
- The luxury midsize Cadillac SRX crossover and CTS Sport Wagon
- The Chevy Equinox and GMC Terrain, midsize crossovers with highway fuel economy of 32 mpg
- The Chevy Cruze, GM’s new global compact car
- The Chevy Volt
The mechanics of the sale. The New GM will execute the key elements of its 27 April viability plan (earlier post), along with additional initiatives. Under the plan, GM will sell substantially all of its global assets to the New GM. To implement the sale agreement, GM and three domestic subsidiaries have filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code in the US Bankruptcy Court for the Southern District of New York, and the sale is subject to the approval of the Court. Because GM’s sale of assets to the New GM already has the support of the US Treasury, the UAW and a substantial portion of GM’s unsecured bondholders, GM expects the sale to be approved and consummated expeditiously.
None of GM’s operations outside of the US are included in the US. court filings or court-supervised process, and these filings have no direct legal impact on GM’s plans and operations outside the US. GM confirmed that all business operations are continuing without interruption in its Europe; Latin America, Africa and the Middle East; and Asia Pacific regions.
GM has filed various first day motions with the Court to ensure the company’s continued ability to conduct normal business operations. Upon Court approval, GM will be expressly authorized, among other things, to:
Honor all obligations to customers and continue customer programs, including warranties, without interruption;
Respect operating and financing agreements with GMAC, supporting continued wholesale financing for dealers and retail financing for customers;
Pay dealers’ open accounts and continue warranty and incentive programs;
Pay essential suppliers and logistics providers for goods and services provided before and after the company’s court filings; and
Continue pay and benefits for employees and retirees; however, the amount of non-qualified pension for some executive retirees may be affected.
Capital structure. On 31 March 2009, GM reported consolidated debt of $54.4 billion, along with additional liabilities, including an estimated $20 billion obligation to the UAW VEBA. Under GM’s agreements with the US Treasury, the Canadian and Ontario governments, and the UAW and CAW, and with the support of a substantial portion of GM’s unsecured bondholders that came over the weekend, upon closing of GM’s sale of assets to the New GM, the New GM’s capital structure will consist of:
Approximately $17 billion in total consolidated debt, including:
- $6.7 billion of debt owed to the US Treasury
- $1.3 billion of debt owed to the Canadian and Ontario governments
- $2.5 billion of notes issued to the new Voluntary Employee Beneficiary Association (New VEBA)
Approximately $6.8 billion of other, primarily international debt, but excluding Europe
$9 billion of perpetual preferred stock with a 9% annual dividend, payable quarterly in cash, $2.1 billion of which will be issued to the US Treasury; $0.4 billion of which will be issued to the Canadian and Ontario governments; and $6.5 billion of which will be issued to the New VEBA
Common equity, 60.8% of which will be owned by the US Treasury, 11.7% of which will be owned by the Canadian and Ontario governments, 17.5% of which will be owned by the New VEBA, and 10% of which has been reserved for GM for the benefit of the unsecured bondholders and other unsecured creditors of GM
Warrants granted to the New VEBA to acquire newly issued shares in the New GM equal to 2.5% of its outstanding common equity
Warrants granted to GM at closing to acquire newly issued shares in the New GM equal to 15% of its outstanding common equity, with various exercise prices and expirations
Other than the $8 billion of debt owed to the US Treasury and the Canadian and Ontario governments by the New GM, all amounts owed by GM or the New GM to the US Treasury and Canadian and Ontario governments would be equitized in exchange for the New GM securities described above, and no other debt will be owed by GM to the US Treasury and the Canadian and Ontario governments.
GM Europe Restructuring. GM announced separately that GM Europe has an agreement for €1.5 billion of bridge financing from the German government and a Memorandum of Understanding to partner with Magna International Inc. (Earlier post.) Under the agreement, the Opel/Vauxhall assets have been pooled under Adam Opel GmbH, with the majority of the shares of Adam Opel GmbH being put into an independent trust (the balance to remain with General Motors), while final negotiations with Magna proceed.
GM’s primary bankruptcy counsel is Weil, Gotshal & Manges LLP. GM is also represented by Jenner & Block LLP and Honigman Miller Schwartz and Cohn LLP as counsels. Cravath, Swaine, & Moore LLP is providing legal advice to the GM Board of Directors. GM’s restructuring advisor is AP Services LLP and its financial advisors are Morgan Stanley, Evercore Partners and the Blackstone Group LLP.