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GM in Bankruptcy, With Thousands to Lose Jobs; U.S. Providing $30.1 Billion in Financing

The Obama administration took General Motors into Chapter 11 bankruptcy Monday, June 1, and moved quickly get the carmaker out with $30.1 billion in bankruptcy financing, the White House said in a statement.

The federal government will have the right to replace GM’s current board of directors with its own trustees, except for one director who will be picked by the Canadian government and another selected by a United Auto Workers-administered retiree health care trust.

But the White House vowed to exercise its ownership stake in GM “in a hands-off, commercial manner.” That is, to let it operate as a car company, not a government agency.

The Obama administration said it didn’t intend to provide funding beyond the $30.1 billion in bankruptcy financing. The government has already assisted GM with $19.4 billion since late December.

The $30 billion will give the government a 60 percent stake in a reorganized GM. The governments of Ontario and Canada will provide another $9.5 billion in financing to GM for a 12 percent stake in the new GM.

Dealerships that GM plans to discontinue will be offered an agreement to phase out their stores over the next 18 months.

More pain is in store for the UAW members as well.

GM intends to announce that it will close 11 plants and idle three others. The carmaker had aimed in February to cut 21,000 more hourly workers. GM employs about 54,000 workers represented by the UAW.

With the necessary reductions in capacity and a cleaned-up balanced sheet, a reorganized GM will be able to break even on its operations at 10 million annually in industrywide U.S. vehicle sales, the administration said. The previous break-even point was 16 million sales, according to the White House.

Contract concessions approved by the UAW last week will save GM about $1.2 billion annually. That agreement calls for elimination of bonuses and cost-of-living increases as well as more flexible factory rules.

The UAW also agreed to accept GM equity instead of cash for most of the funding of the retiree health care trust known as a voluntary employee beneficiary association.

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