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.
“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.
An appeal is expected. 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. The deadline to appeal is noon Thursday, after which point Gerber’s order takes effect and the sale is free to close.
Attorneys for some of GM’s bondholders, unions, consumer groups and individuals with lawsuits against the company have said their needs have been pushed aside in favor of the interests of GM and the government.
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.
Steve Rattner, a top aide to Treasury Secretary Timothy Geithner and the head of the Obama administration’s auto task force, said the government was “confident that his decision will stand and the sale of GM’s assets to new GM will proceed expeditiously.”
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.
“Now it’s our responsibility to fix this business and place the company on a clear path to success without delay,” GM CEO Fritz Henderson said in a statement early Monday.
Last month, a group of bondholders and others took their objections to Chrysler LLC’s sale to Fiat Group SpA all the way to the Supreme Court, which declined to rule on them. Still, the proceedings delayed the Auburn Hills, Mich.-based automaker’s exit from bankruptcy protection.
Consumer groups have cautioned that people injured by a defective GM product before June 1, when the automaker filed for bankruptcy, 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.
The “old GM,” which will be known as Motors Liquidation Co., will include a smattering of properties, several of which are facilities already slated to be closed. They will be sold to the highest bidder under court supervision.
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 Detroit car maker’s Chapter 11 filing was the fourth-largest in U.S. history.
Even with less debt, fewer liabilities and a reduced number of dealerships and brands, GM will operate 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. GM received nearly $20 billion in taxpayer funds before its bankruptcy and Rattner said the government has provided between $10 billion to $11 billion to finance the bankruptcy. He said an additional $19 billion in financing would be provided to GM by the end of the year.
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 United Auto Workers union gets a 17.5 percent stake through its health care trust for retirees and 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.
Rattner, in a conference call with reporters, said he expected the new GM board members to be seated “over the next few weeks.”
“We are not going to operate as a parallel board — we are not going to micromanage or get involved in day to day decisions,” Rattner said of the government’s role in the auto company.
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.
Source: The Associated Press
