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US Icon, General Motors on the Verge of Bankruptcy



THE global financial crisis closed in on two more victims today after General Motors said it would need a government rescue and major US electronics retailer Circuit City filed for bankruptcy.

The news capped another day of gloomy developments in the United States, the world's largest economy, undermining hopes that coordinated action by governments around the world could keep the global downturn from getting worse.

General Motors chief executive Rick Wagoner said the US automaker would need state help before President-elect Barack Obama takes over the White House in January, telling industry publication Automotive News that time was of the essence.

"This is an issue that needs to be addressed urgently," he said, calling on the Government to "overshoot, not undershoot" the level of assistance.

His call for support came as GM shares lost 23 per cent yesterday after analysts at Deutsche Bank said they expected the stock eventually to be worth nothing at all.

"Even if GM succeeds in averting a bankruptcy, we believe that the company's future path is likely to be bankruptcy-like," the bank said.

Mr Wagoner said the entire US auto industry was suffering, with sales expected to be down by more than three million vehicles next year in the face of the global economic downturn.

"I'd question whether the US industry as a whole could survive that without support," he said.

US electronics retailer Circuit City said yesterday it had filed for bankruptcy protection and obtained a $US1.1 billion ($A1.64 billion) credit lifeline to battle a sharp decline in sales.

Just a week after announcing it would close 155 stores and take other restructuring measures to fight a cash crunch, the firm became the first major US retailer to file for bankruptcy protection since the crisis began.

Canadian telecommunications equipment provider Nortel Networks posted a third-quarter loss of $US3.4 billion ($A5.08 billion) and announced 1300 job cuts.

"We have seen worsening economic conditions, together with extreme volatility in the financial, foreign exchange and credit markets globally," Nortel president and chief executive Mike Zafirovski said.

The latest dire reports from the United States triggered more woe for Asian stock markets, which lost ground today in line with US shares.

Tokyo lost 3.0 per cent while Hong Kong was down 4.8 per cent.

The news about GM comes ahead of emergency talks among the leaders of the G20 group of largest developed and emerging nations in Washington on Saturday aimed at restoring market confidence and stability.

US officials have said the summit is likely to result in an "action plan" including short-term steps to help fix the global economy, while other countries, notably France, have pushed for the talks to agree concrete steps.

News.com.au

Car bailout deal fails in US Senate, GM Melting Away



THE US Senate has failed to reach a deal on a controversial multi-billion dollar bailout for the beleaguered car industry, Senate Majority Leader Harry Reid said.

"I'm terribly disappointed that we are not able to arrive at a conclusion,'' Mr Reid said after lawmakers spent hours trying to hammer out a compromise over proposed federal loans for the Detroit automakers.

"We have tried very, very hard to arrive at a point where we could legislate for the automobile industry.'

"I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight. Millions of Americans, not only the auto workers but people who sell cars, car dealerships, people who work on cars are going to be directly impacted and affected,'' Mr Reid said.

Republican Minority Leader Mitch McConnell said his allies in the Senate felt that the rescue package which consisted of some $14 billion in short-term loans, would not succeed in rescuing major automakers from the brink of collapse.

"None of us want to see them go down but very few of us had anything to do with the dilemma that they've created for themselves,'' Mr McConnell said.

"And so the question was: 'Is there a way out?' and the administration negotiated in good faith with the Democratic majority a proposal that was simply unacceptable to the vast majority of our side because we thought it, frankly, wouldn't work.''

The Senate failure to reach accord means that any government backed bailout of the US auto sector will likely have to wait until next year.

The House of Representatives passed its version of the rescue plan for Detroit's automakers on Wednesday but the proposal met stiff opposition from Republicans, sending lawmakers hustling to make adjustments.

The legislation would have provided General Motors and Chrysler bridge loans to operate until March 31, and required a restructuring plan to ensure their long-term survival while repaying government aid.

Republican Senator Bob Corker, who spearheaded the alternative proposal, attributed the breakdown to differences over employee compensation, and said that a union representative from the United Auto Workers was present for the talks.

"This is a highly technical matter, involved volunteer employed benefit accounts, it involved bonds, it involved all kinds of discussions that were technical in nature,'' Mr Corker said.

"And through all of that, and we had the United Auto Workers representative in the room, we had the three companies in another room. We were talking to bondholders on the phone. Certainly talking to our colleagues.

"We are about three words away from a deal.''

Democrat Chris Dodd, chairman of the Senate banking committee, lamented the breakdown, particularly with the holidays approaching.

"We will leave here tonight and go home for the holiday recesses but for the literally hundreds of thousands of people whose jobs depend upon this industry, this will not be a joyous season wondering whether or not their jobs, their livelihoods, their homes, their children's futures are at risk,'' Mr Dodd said.

"It is disheartening to me, to put it mildly, that we were unable to come to that agreement.''

After warning it could run out of money within weeks, GM acknowledged ahead of the vote that it was considering "all options'' including bankruptcy, and had hired a team of legal advisers.

News.com.au

Bush may bail out US car industry but in the meantime, GM is sinking



THE Bush administration says it may be willing to give emergency aid to the teetering US car industry, keeping open the prospects for a bailout the day after Congress failed to approve a deal.

Warning of dire consequences for the recession-hit US economy if the once-mighty carmakers collapsed, the White House - in a reversal of policy - said it was ready to consider dipping into a $US700 billion ($1 trillion) Wall Street bailout fund to help keep the companies afloat.

"The current weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry," White House spokeswoman Dana Perino said.

Democratic leaders and the main US car workers' union appealed to President George W. Bush's Republican administration - now in its final weeks before turning over to Democratic President-elect Barack Obama - to provide emergency funds after a Senate deal to save Detroit's Big Three collapsed in acrimony yesterday.

The failure of the $US14 billion bailout plan in Congress sent markets reeling around the world.

Shares in Toyota, the world's biggest carmaker, lost a tenth of their value, and European automakers also closed sharply lower.

But signs that the White House and US Treasury Department were prepared to mount a last-ditch effort to help the carmakers buoyed Wall Street, and large initial losses were mostly recouped.

Analysts say that without quick help, two of the country's major car manufacturers - General Motors and Chrysler - could face bankruptcy.

In response to the company's many struggles, GM said it would cut its first-quarter North American production by 60 per cent.

Treasury had pledged to pump $US250 billion into banks, but so far has only disbursed $US155.3 billion, with another $US10 billion for Merrill Lynch on hold pending its merger with Bank of America.

News.com.au

Quote:GM files for bankruptcy

LONDON, England (CNN) -- The future of thousands of car industry jobs in Europe remained uncertain Monday as General Motors filed for bankruptcy after reaching a deal to sell off its European operations, including German automaker Opel, UK-based Vauxhall and Saab.

GM became the largest industrial company (and fourth-largest overall) to seek bankruptcy protection in the history of American business. The move leaves U.S. taxpayers with a 60 percent stake in the Detroit-based car giant.

Chapter 11 bankruptcy will aim to help GM emerge with only its more profitable plants, brands, dealerships and contracts. Unprofitable plants, contracts and other liabilities that the company can no longer afford will be left behind.

U.S. President Barack Obama said Monday that General Motors had a solid chance of recovering with the proper combination of taxpayer investments, stakeholder sacrifices, and far-sighted planning.

He praised the struggling automaker for submitting a "viable, achievable plan that will give this iconic American company a chance to rise again."

The deal reached with GM's stakeholders, Obama said at the White House, is "tough, but fair."

Obama noted that GM will receive $30 billion in additional funding from taxpayers, giving the public a 60 percent share in the company.

The government agreed to become a "reluctant" shareholder, he said, because that is the only way GM can survive.

The rescue of GM in the United States is being led by an unlikely coalition of the U.S. and Canadian governments and the company's employees and creditors.

On Saturday it was announced that a Canadian parts supplier and a Russian bank had finally reached an agreement to take control of GM's European assets, which include Opel and Vauxhall.

Under the terms of the deal, Magna International will take a 20 percent stake in GM Europe, Russia's biggest bank, Sberbank, will own a 35 percent share, Opel employees will have 10 percent, while General Motors will retain a 35-percent stake.

The German government, which has led the negotiations, will provide a bridge loan to keep GM Europe operating in the short term. German Foreign Minister Frank-Walter Steinmeier described the deal as a "responsible solution" that would preserve the highest number of jobs.

Magna warned during negotiations that it would have to cut about 10,000 jobs, from GM Europe's 55,000-strong workforce. About 2,000 of the job cuts would be in Germany, Magna has said. But a top company official tried to reassure the Germans that it would try to protect the company as much as possible.

"We will, and I want to stress that again, preserve all the German Opel locations," said Magna co-Chief Executive Siegfried Wolf.

Meanwhile, Britain's Business Secretary Peter Mandelson said Sunday that Magna's bosses had given a commitment to continue Vauxhall production in the UK, but had given no details as to how long or whether job losses would follow.

He told the BBC: "I have, in the last 24 hours, spoken again to the senior executives of General Motors in Europe and again I have got their commitment reaffirmed to me as I did previously in the previous week with Magna that their commitment to Vauxhall production continuing in the United Kingdom is firm. But we have got now to pin down specific plans and specific implications for jobs."

Vauxhall employs 5,500 people in England at its plants in Luton and Ellesmere Port.

Meanwhile late on Sunday a bankruptcy judge approved the sale of most of Chrysler's assets to a group led by Italian automaker Fiat, clearing the way for the automaker to emerge from Chapter 11 protection soon.

Fiat's stake will increase to 35 percent if it reaches certain goals. The Italian carmaker also has the right to eventually acquire an additional 16 percent by buying shares, but only if outstanding debts to the U.S. Treasury and Export Development Canada are paid.

The judge's ruling allows Chrysler to leave behind the assets that it does not want, including eight factories and franchise agreements with 789 dealerships, placing thousands of jobs in jeopardy.

For GM, which is has been closely watching Chrysler's emergence from Chapter 11, Monday's bankruptcy filing is just the beginning of a major overhaul aimed at creating a much smaller company.

As part of the reorganization, GM is expected to cut 20,000 jobs and close about a dozen plants by the end of 2010.

GM will also shed its Pontiac, Saturn, Hummer and Saab brands and cut loose more than 2,000 of its 6,000 U.S. dealerships by next year. That could result in more than 100,000 additional job losses if those dealerships are forced to close.
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The government takeover -- even one that aims to be temporary -- marks a dramatic turn for century-old GM, which has been brought to a whisper of insolvency by plummeting auto sales and huge losses.

General Motors has reported losses of more than $90 billion since 2005, while its share of the U.S. market has dropped to 19 percent from more than 40 percent in 1980.

Source: CNN June 1, 2009