WASHINGTON (AP)—General Motors, the humbled auto giant that has been part of American life for more than 100 years, will file for bankruptcy protection on Monday in a deal that will give taxpayers a 60 percent ownership stake and expand the government's reach into big business.
It would be the largest industrial bankruptcy in U.S. history, and the fourth-largest overall. In addition, a GM bankruptcy would be unprecedented as the federal government would pump billions more into the company.
GM president and CEO Fritz Henderson planned to hold a news conference in New York immediately following Obama's announcement.
Administration officials said late Sunday the federal government would pump $30 billion dollars into GM as it makes its way through bankruptcy court. That's besides the $20 billion in taxpayers' money that the Treasury already lent to the automaker.
The $30 billion is to help GM through the Chapter 11 proceeding and move it through its restructuring plan. It doesn't have the money to run the business right now. The money would come from what remains of the $700 billion rescue fund for the financial sector.
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 - and jettison four others.
The company plans to cut 21,000 employees, about 34 percent of its work force, and reduce the number of dealers by 2,600.
"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 after being briefed about the developments by the president. "It's a new beginning, it's a rebirth, it's a new General Motors."
The government's ownership stake and huge financial injection represents yet another remarkable intervention into the American private sector. The Treasury has stepped in to help banks, it has taken majority ownership in insurance conglomerate American International Group and it has guided Chrysler through bankruptcy protection proceedings.
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."
The day to day operations will be carried out by GM's management. But a majority of the board of directors will change and the administration will have a hand in helping select them.
"Our goal is to promote strong and viable companies that can quickly be profitable and contribute to economic growth and jobs without government involvement," a fact sheet issued by the White House and the Treasury Department said.
Still, it was Obama who ordered the firing of former GM CEO Richard Wagoner a month ago. And it was the Obama administration that instructed GM to trim itself to a point that it could break even by selling 10 million cars a year. It's current break even point is 16 million cars.
Even as the White House stressed that it would run the day-to-day operation of the car company, the arrangement was fraught with potential conflicts. The Obama administration has proposed tougher fuel efficiency requirements that GM will need to abide by and has pumped billions into the auto company's lending arm and assured consumers that it will backstop GM warranties.
GM plans to name turnaround executive Al Koch to serve as its chief restructuring officer to help the company through bankruptcy protection, said a person familiar with the matter. 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.
The moves don't change much for GM, but better prepare it for a bankruptcy protection filing, said Rebecca Lindland, an auto analyst for the consulting firm IHS Global Insight.