President Barack Obama will address the nation shortly before noon Eastern, the report says, in an effort to explain the rationale for the filing and his hopes for the future, two officials close to the situation told CNN.
"Today will rank as another historic day for the company -- the end of an old General Motors and the beginning of a new one," the administration stated in documents released Sunday.
Taxpayers will be the majority owners of the Chapter 11 company that at one time sold half the cars built in the United States. The “new GM” will get $30.1 billion in bankruptcy financing from the federal government. This is on top of the $19 billion it has already received in taxpayer funds. White House officials said that the Treasury “does not anticipate providing any additional assistance” beyond that. The federal government will have a 60 percent equity stake in the retooled automaker, and 12 percent will be held by the Canadian government, which is lending $9.5 billion to the company.
GM stock closed at about 75 cents a share on Friday, and is sure to be worthless soon.
Months ago, GM executives were telling people that the company would not file for bankruptcy.
“GM going through bankruptcy is a very positive thing for the auto industry: They should emerge as a reasonable competitor,” Len Blum, managing director at investment- banking firm Westwood Capital LLC in New York, told Bloomberg News. “The only thing that’s been holding GM back is labor contracts and relationships with debtors and franchisees. All that should be cleansed in a bankruptcy.”
CNN reported on the breakdown of ownership:
A trust established to fund health-care benefits for retirees of the United Auto Workers union will own 17.5 percent of the company, and get the right to purchase another 2.5 percent. The governments of Canada and Ontario will lend $9.5 billion and receive 12 percent of the equity in the new GM. Bondholders who lent GM $27 billion will forgo much of what they are owed and instead get a 10 percent share of the new company plus the right to secure another 15 percent.
In addition, investors who own 54 percent of those bonds have agreed to not fight plans for a quick bankruptcy. The deal could make it easier for GM to restructure by neutralizing some of the opposition to a bankruptcy filing.
GM intends to eliminate 20,000 jobs and close 11 factories by 2010. It will idle an additional three, but try to reopen a facility to build a new small car, administration officials said. CNN reports that it currently has 80,000 hourly and salaried U.S. employees, half of its workforce in 2001. GM has already said it will cut 40 percent of its 6,000 retail dealerships by next year and drop four brands -- Hummer, Saab, Saturn and Pontiac. CNN says GM dealerships employ 300,000 nationwide. In addition, there are hundreds of thousands of workers in the auto parts industry and GM suppliers whose livelihood depend on the automaker.
