With the decision by a US bankruptcy judge that General Motors can sell most of its assets to a new company, the American automaker can now start to figure out how to put a Chevrolet, Buick, Cadillac, or GMC in every garage.
The garage, however, will not have a Hummer, Saturn, or Pontiac. Instead, those are “old assets” that GM will either sell or close.
What all this means is that when GM emerges from its speedy trip through bankruptcy court, which can happen after any appeals, it will be a smaller company. Scores of GM plants will be shut down. The company has already said it plans another round of white-collar layoffs, and dealerships with low sales volume have already been told they are out. Moreover, GM, which prides itself on its global nature, will try to sell Saab and a part interest in Opel. [Editor's note: The original version misspelled Opel.]
“It’s losing volume from some big mistakes like Pontiac and Saturn,” says Bruce Belzowski, associate director of the Automotive Analysis Division at the University of Michigan's Transportation Research Institute in Ann Arbor. “They will be smaller in the US.”
The decision by Robert Gerber, the bankruptcy judge, to allow GM to move ahead with its plan was not unexpected, says Mr. Belzowski. GM had the support of the US government, which had pushed the company into bankruptcy. US taxpayers will own about 60.8 percent of the company; the United Auto Workers Medical Benefits Trust about 17.5 percent; and the Canadian and Ontario governments about 11.5 percent. The old GM shareholders will have 10 percent of the company.
The US Treasury has threatened to cut off funding for GM if the company is not out of bankruptcy by July 10. “It shows how important the government support is,” Belzowski says.
Groups opposed to the judge’s decision have until Thursday to appeal it. Those opposed could be some bondholders, perhaps some unions, lawyers representing people suing GM, and maybe consumer groups.
At least one appeal is already in the works, according to the wire services.
The general public often thinks “something is wrong about such a quick sale,” says David Neier, a bankruptcy lawyer at the law firm Winston & Strawn in New York. However, he says, the courts have generally granted relief to the bankrupt company when that is the objection.
In fact, the appeals courts may struggle more over the issue of liability, he says. “For example, if someone buys a Chevy, has an accident, and maintains there is a defect in the car, whose claim should the lawsuit be if the accident happens after the bankruptcy takes place?” he explains.
In the case of Chrysler, which had some of the same appeals in its bankruptcy case, the courts ruled that any liability claims would be the responsibility of the old company.
The Chrysler appeals sped through the courts. The appeals court made its decision in a week, Mr. Neier says, and the Supreme Court in three days.
“This may have a similar time frame, even though it’s 10 times the size,” says Neier, a partner in the law firm.
The new GM, which for legal purposes will be known as NGMCO Inc., tried to put a positive spin on the judge's decision, calling it “another milestone in its reinvention.”
According to the company, it will have less debt and a stronger balance sheet. It also says it now has a lower break-even point, which will allow it to operate profitably at much lower volume levels.
For example, she says, GM is shedding a lot of its legacy costs, such as its healthcare commitment to retirees. The cost cutting, she says, will be vital: GM has a 20 to 25 percent market share, but it's set up to be profitable at 30 to 35 percent.
“The challenge now is to put up or shut up,” she says. “[GM] can’t point to anything else.”
GM’s opportunity, Ms. Lindland believes, is to provide vehicles to a public that has put off making big purchases for the past several years: “There is a real chance to bring in new buyers if you have the right products and the right dealerships and can show the consumer you have your act together.”
• This story was updated at 4:15 p.m. on July 6.