GM bankruptcy court filings begin with N.Y. dealer

[June 01, 2009]  NEW YORK (AP) -- A General Motors dealership in New York filed for bankruptcy protection Monday, beginning the wave of court filings expected as the automaker files for legal protection to complete its reorganization.

Chevrolet-Saturn of Harlem Inc.'s Chapter 11 petition list the company's largest creditors as a trust company that holds more than $22 billion in bond debt, and the United Auto Workers union, which is owed more than $20 billion dollars.

The size of those figures indicate the dealership's filing in Manhattan bankruptcy court is part of GM's overall filing for bankruptcy protection.

The automaker itself is expected to file its own Chapter 11 petition around 8 a.m. EDT. Many GM affiliates will have to file separate petitions as well.

The Harlem dealership's filing shows GM will form a new company called Auto Acquisition Corp. to become the "new GM" that will be 60 percent owned by the U.S. government. The new company will acquire most of the automaker's assets as part of the reorganization process.

The filing lays the groundwork for financing from the U.S. Treasury Department and the Canadian government to keep General Motors Corp. and its affiliates operating while they're in bankruptcy protection.

It confirms Albert Koch, who helped Kmart Corp. through its Chapter 11 reorganization, will serve as GM's chief restructuring officer.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

WASHINGTON (AP) -- General Motors Corp., the century-old automaker battered by the economic downturn, mounting debt and management problems, will file for bankruptcy Monday under government pressure and a majority government ownership stake.

It will be the largest industrial bankruptcy in U.S. history and the fourth-largest overall and comes as smaller rival Chrysler appears ready to make a speedy exit from its own court proceedings.

The move will give the government a 60 percent ownership stake and an unprecedented role in reshaping the auto industry.

President Barack Obama planned to announce his support for General Motors as it enters bankruptcy protection, vowing to provide billions more in government aid and protect the taxpayers' investment without interfering with the company's day-to-day operations. GM President and CEO Fritz Henderson was holding a news conference in New York immediately following Obama's address from the White House.

Administration officials said late Sunday the federal government would provide an additional $30 billion to GM -- which has already received about $20 billion in government loans -- to help it restructure through bankruptcy. GM will follow a similar course taken by Chrysler LLC, which filed for Chapter 11 protection in April and hopes to emerge from its government-sponsored bankruptcy this week.

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 network.

Meanwhile, a federal bankruptcy judge has approved the sale of most of Chrysler LLC's assets to Italian automaker Fiat, clearing the way for the American automaker to exit court protection shortly. Judge Arthur Gonzalez said in a court filing Sunday that he approved the sale, the major piece of a plan orchestrated by the federal auto task force.

GM will move forward with four core brands -- Chevrolet, Cadillac, Buick and GMC. The company plans to cut 21,000 employees, about 34 percent of its work force, and reduce the number of dealers by 2,600. GM was announcing plans to close 11 facilities, idle three others and name the buyer of its Hummer division. GM's stock dropped to its lowest price in company history Friday, closing at just 75 cents. The shares will be virtually worthless in a Chapter 11 reorganization.

"There is still plenty of pain to go around, but I'm confident this is far better than the alternative," said Sen. Carl Levin, D-Mich. "It's a new beginning, it's a rebirth, it's a new General Motors."

The bankruptcy represents a dramatic downfall for GM, which was founded in 1908 by William C. Durant, who brought several car companies under one roof and developed a strategy of "a car for every purse and purpose." Longtime leader Alfred P. Sloan built the global automaker into a corporate icon.

The billions in federal loans will come from the $700 billion rescue fund for the financial sector, representing another significant intervention into private enterprise. The Treasury has used funding to stabilize banks, take a majority ownership in insurance conglomerate American International Group and guide Chrysler through bankruptcy.

Despite its large ownership stake in GM, administration officials said the government intends to avoid interfering with routine management decisions and would strive to shed its ownership stakes "as soon as practicable."

But the arrangement was fraught with potential conflicts. Daily operations will be carried out by GM's management but the administration will play a role in selecting a majority of the new board of directors.

Obama ordered the firing of former GM CEO Rick Wagoner and instructed GM to trim itself to a break even point of 10 million U.S. car sales a year instead of its previous break even point of 16 million vehicles.

GM planned to name turnaround executive Al Koch, who helped Kmart Corp. through its Chapter 11 reorganization, to serve as its chief restructuring officer, said a person familiar with the matter. The person, who spoke on condition of anonymity, was not authorized to speak about the appointment publicly.

For Chrysler, the sale to Fiat means the U.S. company could be out of bankruptcy within the government's original timeframe of 30 to 60 days.

Chrysler's plan gives a 55 percent stake of the new company to a union-run trust for retirees. Fiat gets a 20 percent stake to Fiat that can ultimately grow to 35 percent. The U.S. and Canadian governments get smaller pieces.

Chrysler LLC was forced into court protection on April 30.

Ahead of its own bankruptcy filing, GM rushed to win concessions from stakeholders.

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.

The United Auto Workers union agreed to a cost-cutting deal last week.

[Associated Press]

AP Auto Writer Kimberly S. Johnson reported from Detroit. AP Auto Writer Tom Krisher in Detroit, AP Business Writer Harry R. Weber in Atlanta, AP Business Writer Vinnee Tong in New York and Associated Press Writer Jim Kuhnhenn in Washington contributed to this report.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.