The big financial news is now breaking: General Motors has emerged out of bankcruptcy 40 days later. The operative question will become: is it now sufficiently leaner…and wiser?
General Motors emerged from bankruptcy early this morning, with chief executive Fritz Henderson promising that the fallen corporate giant will be reformed and that “business as usual at GM is over.”
The announcement signals the completion of one of the largest bankruptcies in U.S. history and the next step in what has become a landmark government bailout.
The new GM will have fewer brands, fewer plants and fewer workers. The number of U.S. executives will be cut by 35 percent and U.S. salaried employment will drop by 20 percent by the end of this year. As important, Henderson said, is that the corporate culture at the automaker must evolve, enabling the company to be more nimble and more focused on beating its competitors.
“The new GM is born,” Henderson said.
Henderson said that the company would seek to repay the U.S. money, but stopped short of promising that the U.S. will recover all of the $50 billion it has put into the company.
“We deeply appreciate the support we’ve received. We’ll work hard to repay the trust, and the money, that so many have invested in GM,” Henderson added.
The new company retains the Chevrolet, Cadillac, GMC and Buick brands, along with most of its overseas operations.
GM also keeps 4,100 of its 6,000 U.S. dealerships and most of its plants. But 14 U.S. plants will be closed, and the company will eliminate about 20,000 of its 88,000 U.S. employees by the end of the year as it continues to cut costs.
While the new company goes forward outside of bankruptcy, much of its debt and many of the assets it shed in the process remain in bankruptcy. It will take about two to three years for an entity known as Motors Liquidation Co. (GMGMQ) to liquidate under court supervision.
The company is in the process of selling its Saturn, Saab and Hummer brands. It will make its last Pontiac in September. Virtually all of the dealerships it is shedding will continue to sell GM cars and do warranty repair work into 2010, but all are expected to be discontinued by September of next year.
The new GM has a tough road ahead. The company has suffered from decades of market share losses and now accounts for less than 20% of U.S. auto sales. It retains the lead over its rivals such as Toyota Motor (TM) and Ford Motor (F, Fortune 500), although last year it lost its long-time title of world’s largest automaker to Toyota.
The birth of the new automaker is a victory for President Barack Obama’s administration and Steven Rattner, the Treasury’s chief auto adviser, because the company was formed faster than the government predicted. GM was forced into Chapter 11 protection on June 1.
“This restructuring is a lot of what GM has been trying to look like for years now,” said Aaron Bragman, an analyst at IHS Global Insight Inc. in Troy, Michigan. “What bankruptcy has done is allowed them to sweep away a lot of undesirable things like debt and uncooperative labor contracts.”
Salaried employment will fall by 20 percent, GM said, and the number of U.S. executives will shrink by 35 percent to help meet Chief Executive Officer Fritz Henderson’s goal of shedding management layers to speed decision making.
Among the positions being eliminated is that of North American president, now held by Troy Clarke, a group vice president. GM didn’t say whether Clarke would remain with the new company.
Here’s what the post-bankruptcy will mean to you.
Joe Gandelman is a former fulltime journalist who freelanced in India, Spain, Bangladesh and Cypress writing for publications such as the Christian Science Monitor and Newsweek. He also did radio reports from Madrid for NPR’s All Things Considered. He has worked on two U.S. newspapers and quit the news biz in 1990 to go into entertainment. He also has written for The Week and several online publications, did a column for Cagle Cartoons Syndicate and has appeared on CNN.