‘Business as usual is over at GM,’ said CEO Fritz Henderson
America’s biggest carmaker, General Motors, won a second chance to prove itself as a profitable motor manufacturer today as it emerged from bankruptcy at lightning speed after a remarkably swift, smooth financial restructuring.
After just 40 days under court-supervised protection from its creditors, GM was resurrected as a solvent business shortly after 6.30am when lawyers, completing an all-night paperwork session, signed over its factories, stocks, equipment and intellectual property to a new entity controlled by the US government.
GM’s chief executive, Fritz Henderson, pledged to pay back $50bn (£30.9bn) of public loans well in advance of a deadline of 2015 and promised that the streamlined company would be a nimbler, less bureaucratic and more decisive organisation. GM will focus on four vehicle brands – Chevrolet, Cadillac, Buick and GMC.
“Business as usual is over at GM,” said Henderson at a press conference in Detroit. “Today, we take the intensity, decisiveness and speed of the past several months and transfer it from the triage of the bankruptcy process to the creation and operation of a new General Motors.”
He continued: “We recognise that we’ve been given a rare second chance at GM, and we are very grateful for that. And we appreciate the fact that we now have the tools to get the job done.”
The US government owns 60.8% of the new GM, while Canada’s government holds 11.7% and a union-controlled pension fund has 17.5%. Creditors of the old company, who were owed $27bn (£16.67), were compensated with a stake of just 10% to the dismay of Wall Street bondholders who fought a short, unsuccessful battle for a larger slice.
President Obama had initially predicted that reforming GM would take 60 to 90 days. But creditors’ objections were decisively thrown out by a New York bankruptcy judge, Robert Gerber, in a resounding win for the administration’s auto restructuring taskforce.
“This is a major victory for the Obama administration over Wall Street,” said Aaron Bragman, a motor industry analyst at IHS Global Insight in Detroit. “The government really put the screws on bondholders and enforced a deal on them that it thought was suitable.”
After swapping loans for equity, the new GM has debt of $48bn (£29.6bn), compared to the $170bn (£105bn) burden when it filed for chapter 11 protection. But the transformation has been painful for thousands of employees, parts suppliers and car dealers.
Once cutbacks are complete in 2011, GM is likely to have just 38,000 blue-collar factory workers in the US, compared to 113,000 three years ago. The number of GM plants will fall from 47 to 31 and, through a clear-out of senior management, GM’s executive team will shrink by 35%.
The firm, which was once the largest corporation in America, is in the process of selling international names including Saab, Vauxhall, Opel and Hummer as part of its downsizing. In Britain, the decision to offload GM’s European operations has cast a cloud of uncertainty over 5,500 jobs at Vauxhall factories in Luton and Ellesmere Port, Cheshire.
Henderson said GM’s emergence from the bankruptcy courts would allow “every employee, including me, to get back to the business of designing, building and selling great cars and trucks”.
He insisted that GM could shake off its reputation for uninspirational designs and slow-moving bureaucracy.
“Einstein’s definition of insane is doing the same thing over and over again, expecting different results,” said Henderson. “We know we have to change.”
Among GM’s priorities will be the development of environmentally-friendly vehicles such as the electrically powered GM Volt, which is due to be launched by the end of next year. GM executives have even reportedly mulled changing the company’s distinctive blue logo to a green hue, although Henderson said he did not plan to do this.
New initiatives include a joint venture with the website eBay to explore ways of auctioning cars online, and a forum called ‘Ask Fritz’ in which customers will be able to share suggestions with the chief executive.
But financial experts warned that the company faces challenges in winning back the trust of customers and the financial community.
“The legacy costs are gone. The challenge in the future is how to approach a marketplace that has been burned by GM,” said Pete Hastings, a credit analyst at Morgan Keegan.
Along with its rival Chrysler which also recently went through bankruptcy, GM has been hit by the worst slump in US vehicle sales since the second world war. The company has struggled to cope with high petrol prices, a change in tastes towards smaller, more fuel-efficient vehicles and fierce competition from Asian rivals. It has lost its title as the world’s leading carmaker to Japan’s Toyota.
A new chairman, former AT&T boss Edward Whitacre, will preside over GM’s board. He told reporters: “For 100 years, General Motors was among the world’s greatest companies. It deserves to be there again and it will be there again.”
