GM bankruptcy: What you need to know

The what, when and why behind the fourth-largest bankruptcy in history.

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By Aaron Smith, staff writer

301 Moved Permanently

301 Moved Permanently


NEW YORK ( -- The General Motors bankruptcy is the fourth-largest in history. It is also one of the most complex.

For those who feel a bit confused, here's a quick primer on GM's Chapter 11 filing, including the events that led up to it, and the shape of things to come.

What forced the bankruptcy?

In the words of President Obama, General Motors is "buried under an unsustainable mountain of debt."

The company's problems escalated in 2008, when a spike in fuel prices crippled demand for GM's larger gas burners, including SUVs and trucks like the Hummer. As the recession mounted so did the decline in vehicle sales, especially since many consumers could no longer get loans to buy GM vehicles, and GM's market share fell.

The Obama administration provided $19.4 billion to GM to try and keep it out of bankruptcy, under the caveat that its restructuring be a total overhaul, rather than a streamlined version of its old self. But that wasn't enough. The government will provide another $30 billion to keep the company running during the Chapter 11 process.

What's the point of the bankruptcy?

GM will lose a lot of unwanted weight through Chapter 11 -- potentially $37 billion worth of debt.

Its intention is to free itself up to become more competitive. The bankruptcy judge has the power to let GM out of obligations and contracts it can no longer afford.

The company is also in the process of closing 14 under-performing plants and other facilities and putting three more on stand-by. The company is cutting up to 40% of its franchise agreements with 6,000 dealerships. GM is expected to cut 20,000 jobs during this process.

Also, GM will lose its Saturn, Pontiac and Saab brands, along with Hummer, which it sold to a Chinese industrial company. The company has already said it will kill off Pontiac.

Chrysler LLC, a much smaller automaker, was able to shed $6.9 billion in debt and leave behind its unwanted assets, including eight factories and franchise agreements with 789 dealerships.

Who will own the new GM?

You will, at least a lot of it. American taxpayers will end up with a 60% stake.

The rest will be divided among the United Auto Workers union, GM's bond holders, as well as the federal and provincial governments of Canada and Ontario. Individual investors and mutual funds stuck with $27 billion worth of GM bonds will end up with stock in the new company worth a fraction of its prior value.

Holders of GM (GMGMQ) stock, which was converted to a pink sheet listing with the ticker symbol of GMGMQ, will get wiped out when the process is completed.

Why did GM file in NYC?

GM has businesses located throughout the country, providing a wide spectrum of options for where they can file Chapter 11. But the federal bankruptcy court in lower Manhattan has a reputation for handling big corporate restructurings.

Chrysler, for example, estimated that it would win a favorable ruling from a bankruptcy-savvy New York judge. As it turned out, it was right.

From GM's perspective, it was so far, so good at the start. The bankruptcy judge in its case, U.S. Judge Robert Gerber, ruled on Monday that GM will have immediate access to $15 billion in government funds. Also, he wants to get it done quickly.

What happens next?

Judge Gerber said he will make a final ruling on the financing approval on June 25. If he is able to follow through, then he will meet President Obama's desire for a speedy bankruptcy to create a new company from GM's best assets, within 60 to 90 days.

Gerber might take his cue from the Chrysler case, where Judge Arthur Gonzalez approved the asset sale a month after the April 30 Chapter 11 filing.

"Keep in mind, many experts said a quick surgical bankruptcy was impossible," said Obama, in a press conference on Monday. "They were wrong." To top of page

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