Sale Of Most GM Assets Given Green Light

Ruling Clears Potentially Major Roadblock To Quick Emergence From Bankruptcy

(AP)  A bankruptcy judge has ruled that General Motors Corp. can sell the bulk of its assets to a new company, potentially clearing the way for the automaker to quickly emerge from bankruptcy protection.

U.S. Judge Robert Gerber said in his 95-page ruling late Sunday that the sale was in the best interests of both GM and its creditors, whom he said would otherwise get nothing.

But it appears the ruling will be appealed. A Chicago law firm representing people who have sued GM in several auto accident cases filed paperwork Monday saying it would appeal to U.S. District Court in New York.

"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 his ruling.

The ruling comes after a three-day hearing that wrapped up Thursday, during which GM and government officials urged a quick approval of the sale, saying it was needed to keep the automaker from selling itself off piece by piece.

"This has been an especially challenging period, and we've had to make very difficult decisions to address some of the issues that have plagued our business for decades," GM President and CEO Fritz Henderson said in a statement early Monday. "Now it's our responsibility to fix this business and place the company on a clear path to success without delay."

But attorneys for some of GM's bondholders, unions, consumer groups and individuals with lawsuits against the company argued for its rejection, saying that their needs were being pushed aside in favor of the interests of GM and the government.

Lawyers for five "individual accident litigants" filed a notice of appeal with the bankruptcy court Monday morning that gave no grounds or details. The deadline to appeal is noon Thursday, after which point Gerber's order takes effect and the sale is free to close.

Last month, a group of bondholders and others took their objections to Chrysler LLC's sale plan all the way to the Supreme Court, delaying the Auburn Hills, Mich.-based automaker's exit from bankruptcy protection.

Several consumer groups have objected to provisions in the sale that free the new company from liability for consumer claims related to incidents that occurred before GM went into bankruptcy protection.

That means that people injured by a defective GM product in connection with an incident that occurred before June 1 would have to seek compensation from the "old GM," the collection of assets leftover from the sale, where they would be less likely to receive compensation.

Joanne Doroshow of the Center for Justice & Democracy said in a statement the issue "is far from over."

"It is morally reprehensible that GM will pay for injuries and deaths that occur after the bankruptcy process, but not for the hundreds of victims who have already been hurt by defective GM cars," Doroshow said.

GM's government-backed plan for a quick exit from Chapter 11 hinges on the sale, which will allow the automaker to leave behind many of its costs and liabilities. The Treasury Department has vowed to cut off funding to GM if the sale doesn't go through by July 10.

The Detroit car maker's Chapter 11 filing on June 1 was the fourth-largest in U.S. history.

GM will leave bankruptcy court with significantly reduced debt and labor costs, as well as fewer dealerships and brands. But it's still operating in an environment where fewer American are buying cars. At the current pace, automakers will sell around 9.7 million vehicles this year. That's a reduction from sales of more than 16 million vehicles as recently as 2007.

In June, the automaker captured 20.3 percent of the U.S. market. GM has estimated that it can maintain a market share between 15 and 17 percent, reflecting its plan to sell off three brands and end its Pontiac line.

GM has several new cars coming to market next year, including the Chevrolet Volt, a plug-in hybrid electric car. The Volt might be a promising vehicle, but with an expected $40,000 price tag it might only be a niche player, said James E. Schrager, clinical professor of entrepreneurship and strategy at the University of Chicago Graduate School of Business.

Upcoming small-car models such as the Chevy Cruze and Spark may fare well, but will face heavy competition from foreign automakers already in that segment of the market and from Ford Motor Co.'s new Fiesta, which the company has already started advertising.

Overall, GM's major challenge will be winning back customers who have migrated to foreign competitors. Some newer GM models have received good reviews for quality and performance, but that hasn't persuaded enough consumers to buy GM cars.

"The problem is the status of General Motors' brands," Schrager said. "They have to have some really breakthrough products that work and resonate with consumers. And they may have to slowly, over time, turn the image around."

The company is expected to receive $50 billion in taxpayer funds. In exchange for those funds, the government will own about 61 percent of the "new GM." The Obama administration has said it does not plan to interfere with the day-to-day running of the company, though government has been involved in the selection of the new company's 13-member board of directors and change of control transactions.

The company, in consultation with the government, named former AT&T Inc. CEO Ed Whitacre to chair the board. Whitacre is in the process of choosing four new directors.

The United Auto Workers union, which gets a 17.5 percent stake through its health care trust for retirees, has selected Stephen Girsky, a former GM adviser and Morgan Stanley analyst, to serve on the board. The Canadian government, which will control an 11.7 percent share, also will pick one member.

Henderson, who succeeded former CEO Rick Wagoner in March when the Obama administration forced Wagoner to resign, has said he expects to remain at the helm of the automaker as it comes out of bankruptcy.

Henderson has already said he would cut about 34 percent of GM's executive ranks by the end of the year.

Auto lender GMAC Financial Services said Monday the contracts GM has with GMAC would be transferred to the new GM entity.

Assets that GM does not sell to the new company will become part of the separate "old GM," which the company said Monday will be known as Motors Liquidation Co., and will be sold to the highest bidder under court supervision.

The old GM will include a smattering of properties, several of which are facilities already slated to be closed.

Other assets to be filed under the old GM include brands like Hummer, Saturn and Saab, for which GM has lined up buyers. They also include all current GM common stock, which — despite its active trading on over-the-counter markets — will soon be worthless.

The old GM will remain an entity until all of the facilities are sold off, a process that could take months or years to complete.

The government has said it plans to provide about $1.18 billion to fund the wind-down process.

[wingman8]

so, let's just take the money from the sold assets, re-pay the american people as much as possible, then shut this dog down.

[wilbursandersjr]

whitemale08 is the voice of "infallible prophecy" again. We should all subscribe to whitemale08news.com.

What a self-righteous joke.

[whitemale08]

I warned months ago that GM, Chrysler and Ford will eventually by-pass Chapter 11 and liquidate in Chapter 7.

[STBY21]

I forget. WHY did "we" give $30 billion to GM while it was in bankruptcy already?

How much of that $30 billion do we get back now?
by darthcheney345 July 6, 2009 10:16 AM PDT

Obama will send you $30 Billion in soon-to-be-worthless GM common stock. Try not to spend it all in one place.

[darthcheney345]

I forget. WHY did "we" give $30 billion to GM while it was in bankruptcy already?

How much of that $30 billion do we get back now?

[STBY21]

I agree dlopucki,

This bankruptcy negotiation stinks to high heaven. If the government had become the debtor in possession lender than GM could have avoided a lot of the disgrace they are going to get from this route. This seems like the Obama team just changed the rules in the middle of the game for their benefit. What happens in the future if any other companies want to shed all of their debt and litigation liabilities? Will they be able to look at this and cite it as a precedent for just selling the worthwhile assets to another company they just formed and then screw the consumer and creditors with the junk assets left in the "old" company? This will have an extremely negative impact to the lending of business credit in the future.

[tmittelstaed]

Ah, this is exactly how a bankruptcy works - you screw the creditors and the company continues on with the viable assets. Remember that at the point the company enters bankruptcy they are insolvent - meaning their debts exceed their assets. In this bankruptcy the large creditors - including the US government - actually got worse than the creditors like the product liability people, because there's no guarentee that new-GM will every be profitable or even be worth anything 3 years grom now. By contrast, Saturn and Hummer are worth something right-now, and are up for sale, and as soon as they are sold, the product liability people will get paid off.

[whitemale08]

You don't even hear Obama talk about re-industrializing America.

He's happy that both Haiti and the U.S. are two 'service sector' i.e. 'cheap tourists' vacation spots.

[darthcheney345]

Obama nation!

[dlopucki]

Just today another article in the journal reported on how a ?business? decision was made on a mostly political basis (where to build a new plant.) This is infectious and will lead to the gradual wind-down of GM as others have predicted. And despite what politicians and perhaps even the court will say, it didn?t have to be like this. All the government had to do was offer to be the debtor-in-possession financier without the post bankruptcy ownership. That would have provided for orderly chapter 11 reorganization as they have been done for decades; Notice that it only took a couple of weeks to find buyers for three major parts of GM. They could have handled the entire bankruptcy in that kind of orderly way. Instead they used an illegal process that will cause every secured lender from this point on to avoid lending to any large company that might ever attract government interest in its bankruptcy. Why? Because they can?t predict what if anything they will get from the insolvent debtor even if they are able to properly value assets.

Don't believe me that the process used here is illegal? Check out this short video of Prof Lynn M LoPucki (renowned bankruptcy expert) testifying to Congress about what the GM and Chrysler bankruptcies mean for the future.

http://www.youtube.com/watch?v=hvhlhFNi1hs&feature=player_embedded

Also see a beautiful graphical overview of the chapter 11 process (how a complicated bankruptcy used to happen) at:

http://www.bankruptcyvisuals.com/viewcharts.html

[posted strictly for informational purposes; no registration, no fee of any kind, no pop-ups, no ads; these were designed by Professor LoPucki as well.]

[rushlimpdrug]

". . . GM has estimated that it can maintain a market share
between 15 and 17 percent. . "

That's the attitude, don't go in thinking to being THE #1 in
sales, just ask for the bottom 15-17%.

[Benton09]

Get your Pontiac before they become extinct next year!
See a Government Motors (GM) dealer today!

[tmittelstaed]

"...Several consumer groups have objected to provisions in the sale that free the new company from liability for consumer claims related to incidents that occurred before GM went into bankruptcy protection.

That means that people injured by a defective GM product in connection with an incident that occurred before June 1 would have to seek compensation from the "old GM," the collection of assets leftover from the sale, where they would be less likely to receive compensation...."

HOWEVER, people injured by a defective GM product AFTER bankruptcy is completed WILL BE PERMITTED to recover damages from the NEW company. This was agreed to last week.

The fact is that the only people who will get screwed over this deal are the ones who either have completed claims and GM owes them money but hasn't yet paid them, or are in the middle of lawsuits with GM. And most of those people were already paid something by their auto insurance. And, of all the people in that group - they still will get something when the "old GM" is liquidated. The liquidation of Saturn and Hummer will almost certainly fetch a good chunk of change, plenty enough to pay off these claims. Much of this depends on how the bankruptcy judge rules.

It's worth noting that Chrysler shed ALL liabilities, past and future, including product liabilities, as a result of it's bankruptcy. The only exception was new car warranty claims which Fiat agreed to pick up.

It's unfortunate but the fact is that when a company is bankrupt, that really means bankrupt!! Not, bankrupt for some people but not for others. If people are concerned, they probably should look at selling their GM cars and buying new ones. Maybe they could buy a Smart car - if they trade in their old GM SUV under the cash-for-clunkers program, they can pick up a Smart car for only $99 a month!