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Taxpayers to have 60 percent ownership stake; feds to pump $30 billion more into company
Published on Monday, Jun 01, 2009
From Beacon Journal wire services
WASHINGTON: General Motors, the humbled auto giant that has been part of American life for more than 100 years, will file for bankruptcy protection today in a deal that will give taxpayers a 60 percent ownership stake and expand the government's reach into big business.
Underscoring the government's extraordinary role, President Barack Obama planned to announce his support for GM's restructuring strategy at a midday appearance at the White House, much as he did in April when Chrysler sought court protection.
GM President and CEO Fritz Henderson planned to hold a press conference in New York immediately following Obama's announcement.
Administration officials said late Sunday the federal government would pump $30 billion into GM as it makes its way through bankruptcy court. That's besides the $20 billion in taxpayers' money that the Treasury already lent to the automaker.
The money would come from what remains of the $700 billion rescue fund for the financial sector.
The officials, speaking on condition of anonymity in advance of Obama's public remarks, said the administration expects the court process to last 60 to 90 days. If successful, GM will emerge as a leaner company with a smaller work force, fewer plants and a trimmed dealership force. The company will stick with its four core brands —
Chevrolet, Cadillac, Buick and GMC.
''There is still plenty of pain to go around, but I'm confident this is far better than the alternative,'' Sen. Carl Levin, D-Mich., said Sunday after being briefed about the developments by the president. ''It's a new beginning, it's a rebirth, it's a new General Motors.''
The company's last steps toward bankruptcy took place over the weekend as a majority of GM bondholders agreed not to challenge the filing in court and to exchange their debt for stock at about 10 cents of equity for every dollar owed by the company.
To assist in the restructuring, the automaker is expected to hire the consulting firm Alix Partners, which has worked on several major bankruptcies, including those for Enron and Kmart. One of the firm's partners, Al Koch, is expected to manage the liquidation of corporate assets that GM will shed during its Chapter 11 restructuring, people with knowledge of the bankruptcy strategy said.
Obama taking risks
Obama is taking several risks under the plan. None may be bigger than the decision that the U.S. government will take a 60 percent share of the stock in a new GM, leaving taxpayers vulnerable if the overhaul is not successful. (Canada, for its part, is taking a 12 percent stake.)
''We don't think that after this next $30 billion, they will need more money,'' one senior administration official said. ''But the fact is there are things you don't know — like when the car market will come back, and how much Toyota and Honda and Volkswagen will benefit from the chaos.''
The administration said it had concluded that if Washington just kept lending money to GM, loading it with debt, the company would be unable to both invest in its business and pay back the loans.
In his remarks today, Obama is expected to argue that any alternative to his plan would be worse, and that a liquidation of GM — the only other real option — would send the unemployment rate soaring over 10 percent and would radiate damage throughout the economy.
But aware of the hardships the plan will impose on regions across the country that depend on auto production, the White House is dispatching a dozen Cabinet members and other officials across four states this week to reassure residents.
With Obama setting off on Tuesday for the Middle East and Europe, advisers said they wanted to demonstrate their concern to communities whose lifeblood — autos, auto parts and the revenue they generate — will likely never regain its vibrancy of even a few years ago.
Reluctant shareholder
Aides say Obama will portray himself today as a reluctant shareholder, eager to sell the company back to private investors, perhaps within six to 18 months.
However, in talking to reporters on Sunday evening, a senior administration official acknowledged that there was ''an inevitable tension'' between the desire to return the company to private hands quickly and the assumption that the government might be more likely to recover its $50 billion investment in the company if it held onto the stock for an extended period.
Officials say the president will insist that once the government sets up new management and a board of directors, it will remove itself from GM's day-to-day operations. But even his aides anticipate intense pressure as the company's managers are called to testify in Congress and face questions like why they decided to build new cars in Mexico and South Korea, rather than in Michigan or the South.
''Congress and many Americans are going to say, 'If we own it, why can't we make these decisions?' '' one of Obama's top economic aides said, ''and it's going to be a challenge to answer that.''
Six months ago, even the suggestion of such deep intervention into GM's operations would have raised huge objections. But by the time the denouement came, the company seemed almost relieved. Robert Lutz, GM's vice chairman, said that ''for the first time in our history, the American auto industry has the ear of the administration. Their No. 1 goal is to make us successful.''
The Associated Press and New York Times contributed to this report.
Get the full article here.
Comments
Click here to post your comments
Posted 06:06 AM, 06/01/2009
No comment.
Mogadore, OH
Posted 06:47 AM, 06/01/2009
Obama may have four months in office, yet this is still Bush's economy...just like what FDR walked into!
uniontown, oh
Posted 07:24 AM, 06/01/2009
@MaD ~ Obama may have four months in office, yet this is still Bush's economy...just like what FDR walked into!
***************************************************
When Bush was in office he spent his billions and did so over a eight year period.
Yes, we have a war that has taken the bigest chunck of those billions. One can claim that the war was just or unjust but one thing they can not say is that our country has not been attacked again.
That being President Bush is NO LONGER in office. The Republicans NO LONGER controll Congress.
NO! The economy now belongs to Obama and the Democrats.
And by the way...While Bush spent his billions and billions, he did so over eight years. However, Obama has taken less than his first hundred days in office to run through over four trillion of the taxpayer's dollars and he ain't done yet.
Mogadore, OH
Posted 07:55 AM, 06/01/2009
fat- This country is in the midst of the largest economic mess since the Great Depression, also brought on by an inept Republican president! FDR inherited that mess along with the mess Obama inherited. Point is, the Republicans lined their pockets at the country's expense, i.e. Futures Commodity Act, and some of the other bills they pushed through when they were in control! Let's talk about the war, and the war crimes charges against Bush, Cheney being considered by Spain, and Germany!
Akron, Oh
Posted 09:55 AM, 06/01/2009
The handling of the auto makers in Detroit has been REAL disappointing. With the country's public transportation systems a mess and dilapidated school buses taking our children to school, and a rail system that would make those living in the 1800's proud, and with stimulus dollars set aside for each of these projects, why the hello isn't the administration having Detroit retool and fill these needs and keep people working??????
Posted 11:21 AM, 06/01/2009
@ Mad, just what has that democratic congress done for you in the last two and a half years?
Akron, Oh
Posted 12:14 PM, 06/01/2009
Yet ANOTHER MaD rant. People, didn't you know EVERYTHING is the fault of the GOP? Including that flat tire or spilled cup of coffee this morning?
Ravenna, OH
Posted 12:26 PM, 06/01/2009
MaD keeps a collection of posts on his Mommy and Daddy's desktop. When he is done clocking out each day and after his Mommy washes his clothes, he copies and pastes his post of the day. He's never answered a question, just the same 8-years post.
Akron, Oh
Posted 12:53 PM, 06/01/2009
Where's GOPhater been? He would've been all over this!
Akron, Oh
Posted 01:45 PM, 06/01/2009
And if we're gonna talk about history (and that is ALL it is), Hoover, in 1925 (Sec. of Commerce) warned the current president that current stock market speculation was getting rediculous. This parallels Bush warning congress SEVEN TIMES about speculation with the housing and finance markets.
They had Andrew Mellon and Thomas Lamont. We had Christopher Dodd and Barney frank. Don't forget the electronic run on the banks in Sept 08 to the tune of $500 billion! This occurred within 1 1/2 hrs., and had to have been planned in advance by outside forces.
The bottom line is.....quit laying everything on one man!
Mogadore, OH
Posted 02:26 PM, 06/01/2009
ed- Bush threatened veto if congress attempted to overturn some of these economic policies! One of Obama's first acts was to if fact do away with these toxic bills which created this economic downfall. Go to the 6o Minute web site, and type in the Futures Commodity Act!
Mogadore, OH
Posted 02:30 PM, 06/01/2009
brainwashed- My parents are dead! I worked my way through Akron U, and retired at 48 with a full pension. That's right, every day I'm on vacation, unlike you who'll be working until you're 90!
Mogadore, OH
Posted 02:32 PM, 06/01/2009
thunder, no name, and the rest of your identities- Booooooooooooooooooooooooooooooooooooooooooooooogus
Akron, Oh
Posted 02:46 PM, 06/01/2009
Look out, Mr. Identity crisis (aka MaD) has sand in his 'gina today!
Akron, Oh
Posted 02:50 PM, 06/01/2009
You're absolutely right about MaD, Brainwashed. Just cut 'n paste. Then again, maybe another of my secret identities is "brainwashed"? After all, I'm "no name", "cloverfield", thunder", the list goes on.
Ravenna, OH
Posted 03:02 PM, 06/01/2009
True to form, MaD can't respond to a comment directly. His Booooogus respond? Genius! His response about me shows he knows nothing about me, like pretty much everything else he responds to.
Akron, Oh
Posted 03:41 PM, 06/01/2009
Brainwashed, he / she likes to think that I have 5 sign-ins on this site. Sorry, it's just me. I honestly think his / her retirement is actually a mental disability.
Ravenna, OH
Posted 03:44 PM, 06/01/2009
T31, I didn't know McDonalds paid so well.
Mogadore, OH
Posted 04:37 PM, 06/01/2009
thunder- I busted you posting the same post under two names, then a third name singing your own praises! Booooooooooooooooooooooooooooooooooooooogus
Mogadore, OH
Posted 04:39 PM, 06/01/2009
brainwashed- You're one of those hacks who fell into something after highschool, and are still there. Otherwise, you would have told me about your education upon request...
Posted 04:45 PM, 06/01/2009
@Mad, What a democratic congress has no b#lls? "He's going to veto it so don't do it."
Ravenna, OH
Posted 05:06 PM, 06/01/2009
Wow MaD, you so have me pegged. You're a freaking genius!
Ravenna, OH
Posted 05:07 PM, 06/01/2009
Busting folks as you claim, will be the only "bust" you will ever have.
Mogadore, OH
Posted 07:59 PM, 06/01/2009
ed- Bush never vetoed a bill until the Dems won over. It was the Commodity's Act which allowed speculators to drive up gasoline to $4 a gallon, of course Bush is an oil man! This was part of Bush's deregulation, not part of supply, and demand! Obama has closed this loophole!!!
http://www.cbsnews.com/video/watch/?id=4713382n
Mogadore, OH
Posted 08:00 PM, 06/01/2009
brainwashed- yea, right...
Stow, OH
Posted 09:22 PM, 06/01/2009
We should not buy GM ever. Lazy workers getting paid way to much for doing way too little and putting out a terrible product as well. They made their own bed. I don't feel bad at all for them.
Posted 09:52 PM, 06/01/2009
Mad, looks to me like they are still doing it.
Cleveland, OH
Posted 10:00 PM, 06/01/2009
The only people affected by this recession are the folks who took out 75k in loans to get a worthless degree.
Mogadore, OH
Posted 10:02 PM, 06/01/2009
ed- I think there's been some stabilization, I paid $2.55 today. $4 is over the top scary!
