GM's bankruptcy is the largest in U.S. history.
GM's bankruptcy is the largest in U.S. history.

“The General Motors Board of Directors authorized the filing of a Chapter 11 case with regret that this path proved necessary despite the best efforts of so many,” said Kent Kresa, GM chairman, in a prepared statement on Monday, June 1. “Today marks a new beginning for General Motors. A court-supervised process and transfer of assets will enable a ‘new’ GM to emerge as a stronger, healthier, more focused, and nimbler company with a determination not to just survive but to excel. The Board concluded that the proposed transformation will maximize the value of the enterprise, and the return to the many stakeholders who have been involved with GM over the years.”

In the statement, Kresa also expressed his appreciation for the support from the U.S. Treasury, President Obama’s Task Force on Autos, the United Auto Workers Union (UAW) and its members, salaried employees and retirees, concurring bondholders, and, especially, the American taxpayers.

Fritz Henderson, GM interim chief executive officer, said the bankruptcy filing marked the saddest day in GM’s long history, which stretches back more than 100 years. “The economic crisis has caused enormous disruption in the auto industry, but with it has come the opportunity for us to reinvent our business,” he explained. Henderson, who noted thousands of GM employees have sacrificed now so the company can remain in business for the future, said the game plan regarding bankruptcy is to do it once—but do it right. “The court-supervised process we are pursuing provides us with powerful tools to accelerate and complete our reinvention.”

GM’s filing, which comes on the wake of Chrysler’s Chapter 11 action, is also expected to move relatively quickly. Senior White House officials say the essence of the case should take 60 to 90 days. Late Monday, U.S. bankruptcy court judge Robert Gerber gave interim approval for the Detroit-based automaker’s use of a total of $33.3 billion in bankruptcy financing, with $15 billion available for use over the next three weeks. Judge Gerber will rule on final approval of the financing on June 25. He also approved GM’s sale procedures, setting a sale approval hearing for June 30.

The Obama Administration will provide GM with $30 billion in aid to help it restructure in addition to the $20 billion the auto maker had already borrowed from the Treasury. (GM will also get $9.5 billion from Canada.) If all goes according to plan, on top of the 60% U.S. stake and Canada's 12.5% share, the UAW would get a 17.5% stake and bondholders would end up with the remaining 10%. Existing stockholders would be left by the roadside.

Accelerated Plant Closings

As part of GM’s Chapter 11 filing, the company, as expected, announced plans to accelerate factory shutdowns. The manufacturing plan, announced earlier this week, reduces GM’s total number of assembly, powertrain, and stamping facilities in the U.S. from 47 in 2008 to 34 by the end of 2010, and 33 by 2012. These totals reflect GM’s recently announced plans to build a future small car in the U.S. Under this plan, the new GM will achieve full capacity utilization of its assembly operations in 2011, two years ahead of what was scheduled in its Feb. 17 viability plan submission, a company executive said. This will result in lower fixed costs per vehicle sold as well as lower, more efficient capital investment. 

List of Impacted U.S. GM Plants
Plant Status/Timing (date listed or sooner depending on market demand)
Orion, Mich. Standby capacity–September 2009
Pontiac, Mich. Close–October 2009
Spring Hill, Mich. Standby capacity–November 2009
Wilmington, Del. Close–July 2009
Grand Rapids, Mich. Close–June 2009 (previously announced)
Indianapolis, Ind. Close–December 2011
Mansfield, Ohio Close–June 2010
Ponitac, Mich. Standby capacity–December 2010
Livonia Engine, Mich. Close–June 2010
Flint North Components, Mich. Close–December 2010
Willow Run Site, Mich. Close–December 2010
Parma Components, Ohio Close–December 2010
Fredericksburg Components, Va. Close–December 2010
Massena Castings, N.Y. Closed–May 1, 2009 (previously announced)
Service & Parts Operations (SPO)
Warehousing & Parts Distribution Centers
Boston, Mass. Close–December 31, 2009
Jacksonville, Fla. Close–December 31, 2009
Columbus, Ohio Close–December 31, 2009
Source: General Motors


The sense of dread was palpable in Mansfield, Ohio, the site of a GM stamping facility slated for closure in June 2010. Approximately 1,200 workers stand to lose their jobs when the facility shutters. "It's hard to grasp the reality of what's happening and the number of lives it affects here," Pam Drake, president of UAW Local 549, told reporters from the Mansfield News. While many expected bad news, it was hard to take nonetheless. “Everybody had a feeling this was going to happen," said Paul Williams, a 40-year employee at the plant. Williams fears even more than the imminent loss of his job—namely health benefits.

While GM plans to move forward with the closings as announced, both state and national entities said they will be following the bankruptcy proceedings very closely. For instance, Mansfield, Ohio, Senators Sherrod Brown and George Voinovich—along with State Representative Jim Jordan—plan to attend an upcoming strategy session to save the Mansfield plant from closure.

Brown, a Mansfield Senior graduate, said the GM bankruptcy filing "will test our nation's resolve in rebuilding our manufacturing base" and recreating a domestic auto industry. State Rep. Jay Goyal, D-Mansfield, said the bankruptcy court must review the closing list. "The process is still fluid," Goyal said. "My focus will be to communicate the value of our plant to anyone who will listen in the hopes of keeping this plant operational both through bankruptcy and beyond.”

The microscope will also be trained on Michigan, where five plants dedicated to assembly, stamping, and powertrain production are targeted for closure. Three plants around Oakland County will close permanently or idle indefinitely as part of General Motors Corp.’s bankruptcy filing; the GM Truck assembly plant in Pontiac, Mich., will close in October, while the assembly plant in Orion Township and Pontiac Metal Fabricating will be placed on standby until such a point that vehicle sales restart. In all, the decision impacts more than 5,300 GM employees. Nearly all of the workers will be eligible for supplemental employment benefits and a new transitional benefit program once their benefits run out.

The pain won’t likely end at the plant level. GM, which, under bankruptcy, is permitted to cancel franchise agreements with its dealers, has already announced plans to eliminate 1,100 dealers—and it may cut as much as 2,000. Dealers can sue to block the action, but a final decision would be up to Judge Gerber. Some estimates being bandied about figure tens of thousands stand to lose their jobs if even a few hundreds dealerships shutter.

Ripples will almost certainly be felt at the parts supplier level, particularly in critical states such as Kentucky and Indiana. While no Kentucky- or Indiana-based companies are among GM's 50 largest unsecured creditors named on a list included with the carmaker's initial bankruptcy filings, they do include AK Steel of West Chester, Ohio, owed $9.1 million by the carmaker. The company has carbon melting and coating operations in Ashland, Ky., according to Business Lexington. The Obama administration has created a program to provide federal help to parts makers, but in bankruptcy, supplier contracts can be cancelled.


Looking down the road past bankruptcy, GM said it plans to build a future small car in the United States utilizing a UAW-GM assembly plant on standby capacity status, with major metal stampings supported from a UAW-GM U.S. stamping plant that’s also on standby capacity. This new small car, the company said, will play a vital role in GM’s plans to improve the fuel efficiency of its vehicle fleet.

The retooled assembly facility—rumored to be the Orion plant, the same site that will be on standby capacity as of September—will be capable of building 160,000 cars annually. While no definitive location has been named at this point, Troy Clarke, president of GM North American Operations (GMNA), said during a conference call Monday that GM should be able to make a decision on where to build the subcompact model within the next couple of months. “We want to be able to convert it for the 2011 or 2012 time frame,” he said.

GM plans to pursue similar adjustments in other areas of its business, namely its parts and warehousing operations. “As GM strengthens its after-sales business, we’re aggressively pursuing strategies that allow us to continue fast parts delivery to our dealers and distributors, and improve our warehouse capacity utilization,” said Kevin W. Williams, GMNA vice president and general manager, service and parts operations.

Industry observers are hopeful that GM’s bankruptcy proceedings—and ultimate emergence—will be swift and smooth, and that a more agile company will come out on the other side. That’s also the hope of many GM executives. “Our manufacturing operations, which already are among the most productive in the industry, will emerge even leaner, stronger and more flexible as part of the new GM,” said Gary Cowger, group vice president of GM global manufacturing and labor relations.

GM chairman Kresa concurs. “The Board is confident that this new GM can operate successfully in the intensely competitive U.S. market and around the world,” he said. “The Board stands behind the people of GM in embracing this unique opportunity to create value and a new company that will design, engineer, build and market the best cars and trucks in world.”

Sources: General Motors, The New York Times, MSNBC, Mansfield News Journal, Oakland Press, Business Lexington News.