- The Washington Times - Tuesday, June 2, 2009

Question: How long will General Motors remain in bankruptcy?

Answer: In a conference call with reporters Sunday, a senior Obama administration official said the bankruptcy should last “60 to 90 days.” But he readily acknowledged that the GM bankruptcy would be far more complicated than Chrysler’s.

Q: Who will own the “new GM” after it emerges from bankruptcy?

A: The U.S. government, which has already given GM $19.4 billion and plans to provide an additional $30.1 billion, is expected to own 60 percent of the new GM’s common stock. In addition, the government will hold $9.5 billion in debt and preferred stock. The governments of Canada and Ontario, which will lend GM $9.5 billion, will own a projected 12.5 percent of the new GM.

The old GM owed $20 billion to an independent, union-operated trust to fund retiree health care benefits. In place of that $20 billion obligation, a new independent health trust will receive 17.5 percent of the new GM’s common stock (and warrants to purchase an additional 2.5 percent), a $2.5 billion note payable through 2017 and $6.5 billion in preferred stock paying a 9 percent dividend. Unsecured bondholders who hold 54 percent of the $27.4 billion in bonds will receive 10 percent of the common stock of the new GM and warrants to purchase an additional 15 percent.

Q: With the federal government owning 60 percent of the new GM, how active will the government be?

A: A White House fact sheet declared: “After any up-front conditions are in place, the government will protect the taxpayers’ investment in a hands-off, commercial manner. The government will not interfere or exert control over day-to-day company operations. No government employees will serve on the boards or be employed by [the new GM and Chrysler’s successor company]. As a common shareholder, the government will only vote on core governance issues, including the selection of the company’s board of directors [the majority of whom will be replaced at the new GM] and major corporate events or transactions.”

Q: How long will the government remain in control of the new GM?

A: The White House will not, and probably cannot, say at this point. The White House said the government “will seek to dispose of its ownership interests as soon as practicable.”

Q: How long will it take for the government to get the taxpayers’ money returned?

A: Nobody knows. The senior administration official declined to predict or project during Sunday’s conference call. He would only say the government intends to “exit as soon as possible.”

Q: What happens to the pensions and health benefits of GM retirees?

A: The pension plans for hourly and salaried employees will be transferred to the new GM.

Q: What about the GM dealers?

A: GM has already notified about 1,100 dealers that they will be terminated under the new GM. A second wave of dealer terminations is expected. However, unlike the rapid closures of Chrysler dealerships, GM dealers are expected to be given an 18-month window to wind down their operations.

Q: How would a GM bankruptcy reorganization be different from Chrysler’s?

A: The major difference is size. As the nation’s largest automaker, GM would be one of the nation’s biggest bankruptcy protection filings ever.

Q: So what is the significance of GM’s size in a bankruptcy case?

A: It means unraveling GM will be much more complicated than reorganizing Chrysler.

GM operates worldwide, selling cars in 140 countries and owning overseas brands such as Sweden’s Saab, Britain’s Vauxhall and Germany’s Opel.

Separate deals will likely have to be struck to resolve issues related to GM’s overseas holdings, and the German government is already trying to shield Opel and its 25,000 workers from a possible GM bankruptcy. GM will also likely have to navigate the bankruptcy law of the countries where it has plants and other facilities as it works to restructure.

Q: Haven’t the two companies been in danger of collapse since last year?

A: They have. Auto sales have been falling for the past several years, but they took a big nose dive last year. There are many reasons for this, but the big ones are a painful combination of a bad economy, a big jump in gas prices last year and an industry that was still churning out gas-sucking SUVs at a time when more American consumers were looking for cars that were cheaper to fill up.

Q: So why didn’t they just go straight into bankruptcy like other companies do?

A: The federal government feared bankruptcy would lead to chaos that would not only bring down the U.S. auto industry, but rip a huge hole in the economy, at a time when it was already falling fast because of the housing and banking crises.

Q: But aren’t they going into bankruptcy now? What’s the difference between now and then?

A: It’s a matter of timing. With the government’s help, the two companies have already laid much of the groundwork for bankruptcy. That includes brokering new deals with unions, settling big chunks of their debt and figuring out new ownership structures. Another key is that the government will provide more loans to help the companies stay running during bankruptcy.

Q: Would the companies have gotten out of bankruptcy more quickly if they went into it long ago?

A: If the government’s plans for GM and Chrysler come true, they won’t be in bankruptcy that long. Chrysler could come out as early as this week, while GM may last from 60 to 90 days. That’s in part because much of the groundwork was done beforehand.

Q: So what does this all mean for car owners? Doesn’t a long bankruptcy scare them off?

A: Bankruptcy is never a good thing for sales. The administration has tried to reassure potential buyers and owners by saying it will back warranties of both companies. Sales have been bad for the past several months, but it is unclear whether that is the result of the lingering threat of bankruptcy or simply a continuing decline in auto sales.

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