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General Motors to file for bankruptcy Monday

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.

It will be the biggest industrial bankruptcy in U.S. history.

Only a decade ago, GM was the world's largest company. Now, it joins Chrysler as the bankrupt duo of Detroit's once-formidable Big Three.

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. GM president and CEO Fritz Henderson planned to hold a press conference in New York following Obama's announcement.

Administration officials said late Sunday that the federal government would pump $30 billion into GM as it makes its way through bankruptcy court. That's in addition to the $20 billion the Treasury already lent to the automaker, making GM the second-largest recipient of bailout money, behind insurance giant American International Group.

The money would come from what remains of the $700 billion rescue fund for the financial sector.

Following that infusion, "the U.S. Treasury does not believe or anticipate that any additional assistance to GM will be required," a senior administration official said Sunday night, calling the restructuring a "permanent" solution.

Under the proposed restructuring, about 60 percent of the new GM would be owned by the United States, and about 12 percent by the governments of Canada and Ontario. A union health trust would own 17.5 percent, and the company's current bondholders would get 10 percent.

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.

As part of the bankruptcy, GM will spell out 14 plant closings expected to affect 21,000 jobs, and additional cuts among salaried workers.

"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.

Despite its sizable ownership, administration officials said the government intends to stay out of day-to-day management decisions. It says it intends to shed its ownership stakes "as soon as practicable."

GM plans to name turnaround executive Al Koch to be its chief restructuring officer to help the company through bankruptcy protection, a person familiar with the matter told the Associated Press. The person, who spoke on condition of anonymity, was not authorized to speak about the appointment publicly.

Koch, a managing director with AlixPartners LLP, is a veteran turnaround specialist who helped Kmart Corp. through its Chapter 11 reorganization. He will lead the separation of the automaker's assets into a "New GM" and the remaining parts of the company that will form "Old GM." Koch will lead the management team that winds down the "Old GM" company once the automaker emerges from bankruptcy.

A majority of the Detroit automaker's unsecured bondholders have accepted a deal viewed as crucial to reorganization, and Germany agreed to loan $2 billion to GM's German unit, Opel, as part of its acquisition by a Canadian auto parts supplier.

On Sunday a group of large, institutional bondholders, representing 54 percent of GM bondholders, agreed to exchange their unsecured bonds for a 10 percent stake in a newly restructured company, plus warrants to purchase a greater share later. They had balked at an earlier offer that gave them 10 percent of the company without the warrants.

GM's fate and the federal government's intervention was the topic on several Sunday morning talk shows.

"I think the government auto bailout was a big mistake," said Sen. Mitch McConnell, R-Ky., on CNN's State of the Union. He said the company could have been allowed to go into the bankruptcy process much earlier, without additional government money, "and ended up in the same place."

Information from the Washington Post, Los Angeles Times and Detroit Free Press was used in this report.

General Motors to file for bankruptcy Monday 05/31/09 [Last modified: Sunday, May 31, 2009 11:13pm]
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