Bankruptcy Judge Approves Sale of GM Assets to “New GM” – What’s Next?
By Chris Haak
07.07.2009
Late Sunday night, Judge Robert Gerber of the U.S. Bankruptcy Court in Manhattan approved the sale of all of GM’s valuable assets to the so-called “New GM” as part of a Section 363 asset sale under the bankruptcy code. The move was expected to occur eventually – since it’s almost exactly the same scenario that played out in June as Chrysler’s “good” assets were sold to a new company that became Chrysler Group LLC and was approved by the same bankruptcy court (albeit by a different judge). Click here to download the large PDF of Judge Gerber’s ruling.
Judge Gerber stayed his ruling for four days to allow for the expected appeals – which in the GM case, appear to be coming mainly from bondholders who are attempting to extract more value from the bankruptcy than the 10% of the New GM that they are slated to get, and from personal-injury litigants, who are protesting the concept that most of GM’s product-liability claims would remain with the Old GM entity and therefore be liquidated.
The good assets will be transferred to an entity known as NGMCO, Inc. (New GM Corporation, get it?), which will change its name to General Motors Company, and will continue to operate GM’s brands and sub-brands such as Chevrolet, Cadillac, Buick, and GMC. Meanwhile, the so-called Old GM (the former GM Corporation), following the sale of its desirable assets to NGMCO, will be renamed Motors Liquidation Company, and the remaining assets, including property, brands, plants, and equipment – not to mention billions of dollars in liabilities – will be liquidated and otherwise eliminated.
General Motors Company may launch in initial public offering as soon as the first half of 2010, depending upon market conditions at that time, at which point the US government may or may not begin unloading its stake in the struggling automaker, again, depending upon market conditions. (The government has no desire to sell low, so while nearly everyone wants government ownership of GM and Chrysler to end as soon as possible, most also want the government to recover as much money as possible from unwinding its stake as well.)
As has been reported earlier, after the sale of GM’s best assets to the New GM entity, the US government will own about 60% of the company, the UAW will own 17.5%, the Canadian government will own 12%, and bondholders will own 10%.
The next step, aside from the obvious appeals (which, although I’m far from a legal scholar, don’t seem to be likely considering the precedent has already been set with the Chrysler bankruptcy), and asset sale, followed immediately by the [new portion of the] company’s emergence from bankruptcy. Many observers predict that the company could emerge from bankruptcy as early as Thursday, July 9th.
Assuming that the company’s emergence occurs sometime close to that date, the hard work really begins. GM plans to drastically reduce its white-collar and executive ranks, with as many as 4,000 of its white-collar employees by October – just three months from now – and eliminate about a third of the former company’s management team. The cuts are a reality in a company that is going to be significantly smaller than the former GM Corporation had been, with fewer brands, fewer models, lower sales, and lower revenue.
GM also has to win over the US consumer. Many critics of the government bailouts of GM and Chrysler have sworn off buying cars and trucks from those companies as a matter of principle until the money is repaid – if not forever. Working in GM’s favor, however, is a fairly strong product cadence over the next several months. According to the Wall Street Journal, when GM CEO Fritz Henderson announces the company’s emergence from bankruptcy, he will trumpet numerous small, fuel-efficient vehicles, including a small Chevrolet (likely the replacement for the unloved Aveo), a small Buick (likely based on the new European-sold Opel Astra, since Saturn is leaving the corporate fold and the Astra has moved upscale in Europe), the Chevrolet Volt (perhaps you’ve heard of that one), and a production version of the Cadillac Converj (a Cadillac-bodied version of the Chevy Volt shown at the 2009 Detroit Auto Show that was a crowd favorite).
Also on the product front, GM’s product development chief, Tom Stephens, confirmed that the company is on-track to introduce its first plug-in hybrid SUV. That news is surprising, since the Saturn Vue plug-in hybrid was to have been the company’s first PHEV, but the cast-off of Saturn, along with the company’s obvious financial troubles, killed that plan. Since the Vue shared a platform with the 2010 Chevrolet Equinox and GMC Terrain crossovers, it seems likely that one or both of those vehicles could get the Vue’s hybrid drivetrain, but the company might have something more dramatic up its sleeve. By that, I’m thinking that perhaps the Chevrolet Orlando small crossover, first shown in October 2008in Paris, and which is built on the Delta architecture that is shared with the Volt and Cruze, may be the crossover that gets the plug-in treatment.
At the same time, trucks and traditional continue to bring in a lot of revenue for GM. The company is finding itself in short supply of popular configurations such as crew cabs and extended cabs currently, but scheduled plant shutdowns over the summer months to both change over to the 2010 models and to simply save money may harm truck sales in the short term while Ford ramps up production. Longer-term, the company halted development of the next-generation full-size SUVs and trucks in an effort to save money and to allow for more certainty in fuel economy regulations in the coming years. While there is now more regulatory certainty around fuel economy requirements in the coming years, it’s not clear if the company knows what it plans to do with these vehicles. A unibody Suburban/Tahoe/Yukon/Escalade built on a variant of the Enclave/Acadia/Traverse Lambda platform remains a distinct possibility.
Meanwhile, it should be an eventful week for both the New GM and the Old GM regardless of what happens. Stay tuned on Thursday for an update.
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