General Motors won approval from a bankruptcy judge late on July 5 to sell its best assets to a new automaker in which the U.S. government will hold a majority stake. The decision paves the way for a speedy exit for GM, which sought bankruptcy protection on June 1 and has vowed to reinvent itself as a leaner, more profitable company once freed from its burdensome debts.
The new GM will emerge as a significantly smaller automaker with fewer brands, tens of thousands less employees, and a diminished global footprint.
Judge Robert Gerber said he had examined about 850 objections to the restructuring plan raised by GM bondholders and others, but found there were "no realistic alternatives" to the asset sale. "As nobody can seriously dispute, the only alternative to an immediate sale is liquidation - a disastrous result for GM's creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates," Gerber wrote in a 95-page opinion.
"Bankruptcy courts have the power to authorize sales of assets at a time when there still is value to preserve to prevent the death of the patient on the operating table."
Judge Gerber's decision can still be appealed by GM's creditors and it will take several days or possibly a few weeks for the asset sale to be completed.
GM hailed the decision as "another step toward the launch of an independent new GM. "The new GM will have lower leverage and a stronger balance sheet, which when combined with a lower break-even point, will allow it to reduce its risk, operate profitably at much lower volume levels, and to reinvest in the business in the key areas of advanced technology and product development," the company said in a statement.
Fritz Henderson, GM CEO added that now "it's our responsibility to fix this business and place the company on a clear path to success without delay."
GM's weaker assets will be liquidated through the New York bankruptcy court, but the new GM will not be burdened by the lengthy process. The cost of liquidating GM's remaining assets could be as high as $1.2 billion, Henderson testified on June 30.
The U.S. government will own 60.8% of the new company after having supported GM's operations with some $50 billion in emergency loans. Canada, which provided $9.1 billion in loans, will have an 11.7% stake and a United Auto Workers union retiree health care trust fund will hold 17.5%. The "Old GM" will retain a 10% stake, allowing creditors to recover some of their losses.
While the new GM will have a significantly stronger balance sheet after having slashed its labor costs and shuttered factories to rid itself of excess capacity, it must still contend with the collapse in auto sales which pushed it into court protection. Total U.S. auto sales fell 28% in June, the first time sales have fallen by less than 30% since the market crashed in October of 2008, according to Autodata. Sales for the first half of the year were down 35.1% at 4.8 million vehicles.
Copyright Agence France-Presse, 2009
