General Motors, Saturn LLC, and Saturn Distribution Corporation All File for Bankruptcy Protection

GM Logo

As expected, GM filed for bankruptcy protection this morning in a New York based Bankruptcy Court. Fritz Henderson, GM's CEO, told reporters that "Our agreement with the U.S. Treasury and the governments of Canada and Ontario will create a leaner, quicker more customer-and completely product-focused company, one that's more cost competitive and has a competitive balance sheet. This new GM will be built from the strongest parts of our business, including our best brands and products."

GM currently has $82.3 billion in assets and $172.8 billion in debt. Under the court ruling, GM will essentially divide into two separate parts: an old GM and a new GM. The assets that will be liquidated will be placed in the old GM category. These were assets that were deemed costly and unprofitable including the brands Hummer, Saab, Pontiac and Saturn as well as 2,100 dealerships and 11 manufacturing plants. The assets allocated to the new GM are those specific to profitably operating their four core brands: Chevrolet, Cadillac, GMC and Buick. Filing for bankruptcy protection enabled GM to collect an additional $30 billion dollars from the government. Since the US government has invested $50 billion in the company, it will take 60% ownership of the new assets. The Canadian government will own 12.5%. It will supplement the company with nearly $10 billion in funds. The remaining percentage will belong to the UAW (17.5%) and unsecured bondholders (10%). Stock for the newly restructured company is not expected to become public until a year from now.

Both Saturn LLC and Saturn Distribution Corporation also filed for Chapter 11 protection today in an effort to protect and preserve the Saturn brand. Bloomberg reports that court papers state Saturn's board approved the sale of its assets to the US Treasury, meaning that a "federal bankruptcy court will supervise the sale or liquidation of unprofitable brands, such as Saturn." According to a post by a team member on ImSaturn: "GM is actively involved in negotiations for its Saturn brand. Today's Chapter 11 filing does not immediately affect these negotiations."

Part of today's proceedings included GM filing for "first day" motions in court. This permits the company to continue using money to fund their daily operations, including employee salaries, pensions to retirees, payments made to suppliers and logistics providers, fulfilling consumer warranties, and maintaining customer finance agreements.

GM also announced it was closing 11 of its manufacturing plants today and stalling production at three other ones. Two of the plants effected produced Saturn products. Workers at the Wilmington, Delaware plant received the worst news. They were told this morning that the plant would be closing in 30 days. The 62 year old plant, currently produces the Saturn Sky and the Pontiac Solstice. It has 550 active employees on its roster and 515 additional workers who were recently laid off and were hoping to be called back to work.

Workers at the Spring Hill, Tennessee facility were told this morning that their plant was one of the three plants GM will stall production come this fall. However, the engine line at the plant, which builds 4-cylinder Ecotec engines, will continue to operate. Currently, the Chevy Traverse is manufactured at the plant, but in November production of the vehicle will be moved to Lansing, Michigan. The Saturn Outlook is currently built in Lansing, but that vehicle will reportedly be discontinued after the 2009 model year. Nearly 3,000 people are employed at the Spring Hill facility. The Tennessean reports that "during the time the plant is idle workers will receive 75 percent of their pay for a limited amount of weeks. A GM worker at Spring Hill makes an average wage in the $25 range per hour."

GM has promised that one of the three plants placed on stand-by would be retooled for production of a new subcompact car. Two plants leading the bid are Spring Hill and Orion (located in Michigan). Spring Hill workers are holding out hope that their facility will be the site chosen. "This isn't great news, but it's better (than) the alternative," Mike O'Rourke, the local union's president, told the Tennessean. "It's good for Spring Hill we're still in the fight."

Sources: Bloomberg, Tennessean, Delaware News Journal, Detroit News, Automotive News

Random Article from the Archives

Saturn Ranks as the Only Non-Luxury Brand in Top 10 of New Satisfaction Study

2009 Pied Piper Prospect Satisfaction Index

Mercedes-Benz dealerships ranked highest in the newly released 2009 Pied Piper Prospect Satisfaction Index (PSI) U.S. Auto Industry Study, a unique national benchmarking study that measure how consumers are treated when shopping for a new car. Following Mercedes-Benz were Lexus, Jaguar, Saturn and Land Rover.