US gets 60 per cent stake in carmaker

Original source:

General Motors have filed for bankruptcy, giving the US government a majority ownership stake in the century-old corporation.

It is the largest industrial bankruptcy in US history and the third-largest overall, after Lehman Brothers and telecoms firm Worldcom.

The government will end up with a 60 per cent ownership stake and an unprecedented role in reshaping the US car industry.

The United Auto Workers union will initially get 17.5 per cent, accepting shares in lieu of cash owed by GM to fund retired workers’ health-care cover.

US President Barack Obama announced his support for GM as it enters bankruptcy protection, vowing to provide billions more in government aid and protect the taxpayers’ investment without interfering with the company’s day-to-day operations.

On Sunday, administration officials said that the federal government will provide an additional $30 billion (£18.3bn) to GM, which has already received about $20 billion (£12.2bn) in government loans to help it restructure through bankruptcy.

GM will follow a similar course to that taken by Chrysler LLC, which hopes to emerge from its government-sponsored bankruptcy this week.

The officials, speaking on condition of anonymity before Mr Obama’s public remarks, said that the administration expects the court process to last 60 to 90 days.

Washington hopes that, if successful, GM will emerge as a leaner company with a smaller workforce, fewer plants and a trimmed dealership network.

The idea is that GM will focus on four core models – Chevrolet, Cadillac, Buick and GMC.

The company plans to cut 21,000 employees, about 34 per cent of its workforce, and reduce the number of dealers by 2,600.

The bankruptcy represents a dramatic downfall for GM, which was founded in 1908 by William Durant, who brought several companies under one roof and developed a strategy of ‘a car for every purse and purpose.’

The billions in federal loans will come from the $700 billion (£427bn) rescue fund for the financial sector, representing another significant intervention by the state into private enterprise.

The US Treasury has used public funds to prop up banks, take a majority ownership in insurance conglomerate American International Group and guide Chrysler through bankruptcy.