Today, General Motor has announced that it has filed for Chapter 11 bankruptcy following an agreement reached with the U.S. Treasury and the governments of Canada and Ontario to accelerate its reinvention and create a leaner and stronger “New GM”. The filing is the third-largest in U.S. history and the largest-ever U.S. manufacturing bankruptcy, and involves up to $172.81 billion in debts.
If all goes follow with the plan, the New GM is expected to launch in about 60 to 90 days as a separate and independent company from the current GM. The advantage of the new GM is it will be built from only GM’s best brands and operations, and it will be supported by a stronger balance sheet due to a significantly lower debt burden and operating cost structure than before.
Four core brands in the US will be focus for the new GM such as Cadillac, Chevrolet, Buick and GMC . Also, it will benefit from lower labor costs and more efficient North American production, as well as lower structural costs from reduced debt servicing costs and retiree health benefits.In the end of result is an expected break-even point of approximately 10 million vehicles sales for the entire U.S. market, which is substantially below the 15 to 17 million annual vehicle sales rates recorded from 1995 through 2007.
A critical reason of GM’s reinvention is to achieve a significantly stronger and healthier balance sheet. From the source, GM consolidated debt of $54.4 billion on March 31, 2009, along with additional liabilities, including an estimated $20 billion obligation to the UAW Voluntary Employee Beneficiary Association (VEBA) fund.
Moreover, in order to keep GM still running and aid the bankruptcy progress, the U.S. Treasury also pledged $30 billion in bridge financing, which is on top of the $23.4 billion already loaned to the struggling automaker.
Meanwhile, the New GM will have 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 VEBA and roughly $6.8 billion of other debts. In the meantime, GM dealers will continue to service vehicles and honor warranties with the backing of U.S. and Canadian government guarantees.
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