A Failed GM Looks To New GM To Replace Old GM
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General Motors
2nd June, 2009
- U.S. and Canadian tax payers to fund a 'new GM', replacing the failed General Motors Corporation
- Operations outside U.S. not included in court filing
Following recognition that it is a failed company, General Motors Corporation announced last night that it
has reached agreements with the U.S. Treasury and the governments of Canada and Ontario to accelerate its
reinvention and to forge a leaner 'New GM' positioned for a more competitive future.
Pending approvals, the New GM is expected to launch in about 60 to 90 days as a separate and independent
company from the current General Motors (GM), with two distinct advantages: it will be built from GM’s best
operations and it will be supported by a stronger balance sheet due to a significantly lower debt burden and
operating cost structure than before. The New GM will incorporate the terms of GM’s recent agreements with
the United Auto Workers (UAW) and Canadian Auto Workers (CAW) unions and it will be led by GM’s current
management team.
The New GM will execute the key elements of its 27th April 2009 viability plan, along with additional
initiatives, to achieve winning financial results by putting customers first, concentrating on adding to the
company’s line of award-winning cars and trucks through four core brands and continuing to invest in
eco-friendly, energy-saving technologies.
Under its plan, GM will sell substantially all of its global assets to the New GM. To implement the sale
agreement, GM and three domestic subsidiaries have filed voluntary petitions for relief under chapter 11 of
the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York, and
the sale is subject to the approval of the Court. Because GM’s sale of assets to the New GM already has the
support of the U.S. Treasury, the UAW and a portion of GM’s unsecured bondholders, GM expects the sale to be
approved and consummated expeditiously.
GM has asked the Court to approve a number of steps to protect current and new GM customers, ensure that
its operations will continue uninterrupted during the court-supervised process, and provide for a smooth
transition to the New GM.
- GM dealers will continue to service GM vehicles and honour GM warranties, and U.S. and Canadian
government guarantees of manufacturers’ warranties are designed to reassure consumers.
- GM will use its cash-on-hand and a new Debtor-in-Possession (DIP) financing of approximately $33
billion to: ensure an uninterrupted supply of goods and services and provide for other cash requirements
prior to closing of the asset sale; fund liabilities to secured lenders; and provide contingency funding to
handle any potential unexpected needs. Furthermore, in conjunction with the sale, the U.S. Treasury and the
Canadian and Ontario governments will provide funds to administer the wind down of the remaining assets and
the closing of the chapter 11 cases.
- GM employees worldwide will become part of the New GM.
“Today marks a defining moment in the reinvention of GM as a leaner, more customer-focused, and more
cost-competitive company that, above all, can quickly generate winning bottom line results,” said Fritz
Henderson, GM president and CEO. “The economic crisis has caused enormous disruption in the auto
industry, but with it has come the opportunity for us to reinvent our business. We are going to do it once
and do it right. The court-supervised process we are pursuing provides us with powerful tools to accelerate
and complete our reinvention, as well as strong safeguards for our customers and our business. We are
focused on the job at hand, for the benefit of our customers, employees, dealers, suppliers, retirees, tax
payers, investors and other stakeholders.”
“We recognise the sacrifices that so many have been asked to make as we have worked to reinvent GM
and the automobile,” said Henderson. “GM deeply appreciates the support and the demonstration of
confidence in our future by President Obama, the Presidential Task Force on Autos, the Canadian and Ontario
governments, American and Canadian tax payers, the unsecured bond holders who are supporting the proposed
sale transaction, the UAW and CAW and their leadership, and the men and women of GM, including our
retirees. You have enabled us to carry out this vital transformation for the good of GM, our customers and
the economy, and we are working to validate your trust each day.”
“From day one, the New GM will be well-positioned to capitalise on the award-winning vehicles we
have developed and launched during the past few years, and on our investments in exciting new technologies
like the Chevy Volt, so that we can build and return value to our customers and to the millions who will
have a stake in our success. The New GM will play a critical role in the future of the automobile, and
assure that the U.S. has a strong stake in this rapidly changing global manufacturing industry,”
Henderson said.
Business operations continue globally without interruption
GM’s North American manufacturing operations continues to monitor production output to make sure it
aligns with market demand, and currently intends to ramp up manufacturing operations as market demand
improves during the latter half of the year.
None of GM’s operations outside of the U.S. are included in the U.S. court filings or court-supervised
process, and these filings have no direct legal impact on GM’s plans and operations outside the US. GM
confirmed that all business operations are continuing without interruption in its Europe; Latin America,
Africa and the Middle East; and Asia Pacific regions.
“Worldwide, GM dealers are open for business, offering competitive financing options on our
award-winning vehicles, continuing to honour our industry-leading warranty coverage, and providing
outstanding service,” said Henderson. “Furthermore, the U.S. Treasury and the Canadian governments
have issued a strong vote of confidence by backing GM’s vehicle warranties.”
GM has filed various 'first day' motions with the Court to ensure the company’s continued ability to
conduct normal business operations. Upon Court approval, GM will be expressly authorised, among other
things, to:
- Honour all obligations to customers and continue customer programmes, including warranties, without
interruption
- Respect our operating and financing agreements with GMAC, supporting continued wholesale financing
for dealers and retail financing for customers
- Pay dealers’ open accounts and continue warranty and incentive programmes
- Pay essential suppliers and logistics providers for goods and services provided before and after
the company's court filings
- Continue pay and benefits for employees and retirees; however, the amount of non-qualified pension
for some executive retirees may be affected.
The New GM
GM’s agreements with the U.S. Treasury, the Canadian and Ontario governments and the UAW and CAW, in
addition to the support of a substantial portion of GM’s unsecured bond holders, will enable the New GM
to be a leaner, faster and more customer-focused enterprise, consistent with the vision, goals and
plans of GM’s enhanced operating plan announced 27th April, 2009.
The New GM will:
- Focus on four core brands in the U.S. - Chevrolet, Cadillac, Buick and GMC - with fewer nameplates
and a more competitive level of marketing support per brand
- Effectively close the competitive gap in active worker labour costs compared with 'transplant' auto
manufacturers
- More efficiently utilise U.S. capacity while increasing over time the percentage of U.S. sales
manufactured domestically
- Feature lower structural costs enabling its North American region to break even (on an adjusted EBIT
basis) at a U.S. total industry volume of approximately 10 million vehicles. This rate is substantially
below the 15 to 17 million annual vehicle sales rates recorded from 1995 through 2007
- Achieve its lower structural costs in part by further reducing 2009 salaried employment in North
America from its year-end total of 35,100 to approximately 27,200, and continuing to improve its balance
sheet by reducing retiree benefits for salaried retirees and non-UAW hourly retirees
- Provide a higher level of customer service through a U.S. network of approximately 3,600 dealers
- Continue and increase its investment in fuel economy and advanced propulsion technologies
Capital Structure of the New GM
A critical element of GM’s reinvention is to achieve a significantly stronger and healthier balance
sheet. On 31st March, 2009, GM reported consolidated debt of $54.4 billion, along with additional
liabilities, including an estimated $20 billion obligation to the UAW VEBA.
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Under GM’s agreements with the U.S. Treasury, the Canadian and Ontario governments, and the UAW and CAW,
and with the support of a substantial portion of GM’s unsecured bondholders, upon closing of GM’s sale of
assets to the New GM, the New GM’s capital structure will be comprised of:
- Approximately $17 billion in total consolidated debt, including:
- $6.7 billion of debt owed to the U.S. Treasury
- $1.3 billion of debt owed to the Canadian and Ontario governments
- $2.5 billion of notes issued to the new Voluntary Employee Beneficiary Association (New VEBA)
- Approximately $6.8 billion of other, primarily international debt, but excluding Europe
- $9 billion of perpetual preferred stock with a 9 per cent annual dividend, payable quarterly in cash,
$2.1 billion of which will be issued to the U.S. Treasury, $0.4 billion of which will be issued to the
Canadian and Ontario governments and $6.5 billion of which will be issued to the New VEBA
- Common equity, 60.8 per cent of which will be owned by the U.S. Treasury, 11.7 per cent of which will
be owned by the Canadian and Ontario governments, 17.5 per cent of which will be owned by the New VEBA,
and 10 per cent of which has been reserved for GM for the benefit of the unsecured bond holders and other
unsecured creditors of GM
- Warrants granted to the New VEBA to acquire newly issued shares in the New GM equal to 2.5 per cent
of its outstanding common equity
- Warrants granted to GM at closing to acquire newly issued shares in the New GM equal to 15 per cent
of its outstanding common equity, with various exercise prices and expirations
Other than the $8 billion of debt owed to the U.S. Treasury and the Canadian and Ontario governments
by the New GM, all amounts owed by GM or the New GM to the U.S. Treasury and Canadian and Ontario
governments would be equitised in exchange for the New GM securities described above, and no other debt
will be owed by GM to the U.S. Treasury and the Canadian and Ontario governments.
GM Europe Restructuring
GM announced separately last night, GM Europe has an agreement for €1.5 billion of bridge financing
from the German government and a Memorandum of Understanding to partner with Magna International Inc.
Under the agreement, the Opel/Vauxhall assets have been pooled under Adam Opel GmbH, with the majority
of the shares of Adam Opel GmbH being put into an independent trust (the balance to remain with General
Motors), while final negotiations with Magna proceed. Negotiations to close the agreement should take
several weeks.
New products and technologies on track
The New GM, with its strong financial base and dealer network, will support a portfolio of vehicles,
including the Chevrolet Malibu (2008 North American Car of the Year and J.D. Power and Associates’
segment leader in its 2008 Initial Quality Survey), Cadillac CTS (Motor Trend Car of the Year) and its
Buick brand (tied for 1st place in J.D. Power and Associates’ 2009 Vehicle Dependability Study). The
New GM will have a number of key vehicle launches in 2009 and 2010, including:
- Chevrolet Camaro, a dramatic, moderately priced sport coupe
- An all-new Buick LaCrosse premium mid-size sedan
- The luxury mid-size Cadillac SRX crossover and CTS Sport Wagon
- The Chevrolet Equinox and GMC Terrain, mid-size cross-overs
- The Chevrolet Cruze, GM’s new global compact car
- The revolutionary Chevrolet Volt, an extended-range electric vehicle that can travel up to 40 miles
on battery power alone
“Our products are our future, and our line-up of new cars and cross-overs are a great foundation
for success,” said Henderson. “The New GM is here to stay, and our brands position us to
compete well in profitable segments with vehicles that are second-to-none.”
GM also reaffirmed its commitment to improve the fuel efficiency of its vehicle fleet, meet or
exceed new federal fuel economy and emissions regulations, and push ahead with advanced propulsion
technology. GM will launch the Chevrolet Volt extended range electric vehicle in 2010, expects to have
14 hybrid models in production by 2012, and will have 65 per cent of vehicles alternative-fuel capable
by 2014.
“The New GM will become a long-term global leader in the development of fuel-efficient and
advanced-technology vehicles,” said Henderson. “In doing so, the New GM will contribute to the
development of advanced engineering and manufacturing capabilities in the United States, which are
critical to the future of the U.S. economy.”
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