General Motors is heading to bankruptcy court today to seek approval to sell its assets to a ‘new GM’ in a plan to reinvigorate the automaker under US government ownership.
GM is seeking approval for the sale from US bankruptcy Judge Robert Gerber just 30 days after filing for Chapter 11.
Under the deal, brokered by the Obama administration's autos task force, the company would sell its assets under Section 363 of the bankruptcy code to a ‘new GM’ and continue to operate its best assets, like Chevrolet and Cadillac, while gaining access to billions in funding from the US Treasury.
GM's old assets would remain behind in bankruptcy court to be liquidated.
The deal faces several objections from bondholders and those concerned about the fate of its dealers, but no competing bidders have emerged as an alternative to the US government's $60 billion financing for GM, including a proposed equity investment of $50 billion that would give the US Treasury a 60 per cent ownership stake.
If the sale goes through it would mark the second big win this month for the Obama administration's autos task force, which successfully brokered the sale of Chrysler LLC to a group led by Italy's Fiat SpA. The US Supreme Court cleared the way for that deal to go through on June 9th.
“I think it is going even perhaps more smoothly than Chrysler, which is kind of interesting considering how much bigger GM is than Chrysler,” said Stephen Lubben, a bankruptcy professor at Seton Hall Law School in New Jersey.
“Chrysler cleared the path for it and they're using pretty much the same strategy,” he added.
GM said in court documents that the sale would avoid a “systemic failure” for the US auto industry and that it is the only way to provide “a genuine opportunity for the business to survive and thrive in an economically viable entity.”
The company has shut 13 of its US assembly plants for up to 11 weeks as part of a bid to cut production and run down inventory while it seeks approval of the sale in bankruptcy court.
The company plans to shed dealer contracts and has deals to sell brands like Hummer and Saturn that will not be carried over to the new company.
It also plans to shed the Pontiac brand and GM said yesterday that it would cut operational ties with a Northern California auto plant it had operated in a joint venture with Toyota.
Reuters