Out of Gas: GM Expected to File for Bankruptcy
Facing deadline, the troubled automaker is expected to file for bankruptcy.
WASHINGTON, May 31, 2009— -- General Motors is expected to file for bankruptcy Monday, becoming the country's second automaker after Chrysler to go under in just over a month.
Monday is the end of the 60-day period the Obama administration gave the nation's largest automaker to come up with a successful viability plan.
Senior administration officials Sunday night announced that President Obama has accepted the company's plan as viable and will provide an additional $30.1 billion in federal assistance to support GM's restructuring plan.
To execute the plan, General Motors will enter into bankruptcy protection and is expected to emerge as a new company in 60 to 90 days.
"The U.S. Treasury does not believe or anticipate that any additional assistance to GM will be required," a senior administration official said. "We intend for this to be a permanent resolution of the GM situation and an ability for the company to go forward and be profitable."
In return for the additional government funding, the U.S. government will receive $8.8 billion in debt and preferred stock in the new company and nearly 60 percent equity.
In addition, the government will have the right to appoint initial directors to GM's board except for two members, one to be appointed by the Canadian government and the other selected by the trustees of the United Auto Workers union retiree health care fund.
The governments of Canada and Ontario will provide $9.5 billion to GM and will receive $1.7 billion in debt and preferred stock and 12 percent equity in the company.
The independent trust established for GM retiree health care benefits will receive $2.5 billion paid in three installments ending in 2017 as well as $6.5 billion in 9 percent preferred stock.
The trust -- referred to as the VEBA -- will also receive 17.5 percent equity in the new GM and the right to purchase an additional 2.5 percent stock.
As has been previously disclosed, GM will shrink operations to meet a car sales environment in which 10 million cars are sold annually in the United States. The company will do that by closing 11 factories and idling three others.
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