A new General Motors emerged from bankruptcy protection on Friday -- far more quickly than most industry watchers had expected -- as a leaner automaker pledging to win back American consumers and pay back taxpayers.
A whirlwind 40-day bankruptcy for GM concluded with the closing of a deal that sold key operations to a new company majority-owned by the U.S. Treasury.
The development, which follows a similar fast-track reorganization of Chrysler, represented a victory for the Obama administration and its commitment to save jobs and prevent a liquidation of the largest U.S. automaker.
At the same time, the U.S. government has taken on substantial new risks as a 60 percent owner of the new GM with a $50 billion equity investment and $10 billion in debt and perpetual preferred shares.
Analysts said the government intervention had given GM a new chance and sharply lower operating costs, but left management facing deep challenges given the weak economy and GM's long-running slide in market share.
I wouldn't really call it a new GM, it is just a smaller GM. That would be more of an apt description. They still have a lot of hurdles to jump, said Mirko Mikelic, portfolio manager at Fifth Third Bank. Right now, they are in a survival mode.
Chief Executive Fritz Henderson said the new company would shed layers of management, make decisions faster and shed the bureaucracy that critics say contributed to the failure of the 100-year-old automaker.
The company's white-collar workforce will be cut by more than 20 percent by eliminating 6,000 jobs. Executive ranks will be cut 35 percent.
NO MORE BUSINESS AS USUAL
The bottom line is that business as usual -- and as we have had it until today -- is over, Henderson told reporters at GM's Detroit headquarters. Everyone associated with GM must be prepared to change -- and fast.
Bankruptcy slashed GM's debt and healthcare obligations and brought down labor costs to be on par with Japanese competitors led by Toyota Motor Corp.
The new GM will have slashed its debt and healthcare obligations by $48 billion, dropped almost 40 percent of the dealers from an unprofitable network and moved to sell laggard brands such as Saab, Saturn and Hummer.
Analysts said that gives GM a chance to deliver on its commitment to launch more fuel-efficient cars and to focus its resources on fewer brands, models and dealerships.
The challenge in the future is how to approach a marketplace that has been burned by GM, said Pete Hastings, a fixed-income analyst at Morgan Keegan.
While key assets and the Chevrolet, Cadillac, Buick and GMC brands were sold out of bankruptcy to form the new General Motors Company, other assets, including shuttered factories, remain in bankruptcy for a liquidation process.
That old GM, which will become Motors Liquidation Co, is expected to stay in bankruptcy for years.
Bondholders, who had been owed $27 billion, could eventually receive a 10 percent stake in the new GM.
The U.S. Treasury will own 60.8 percent and 11.7 percent will be owned by the governments of Canada and Ontario. A retiree trust fund affiliated with the United Auto Workers union will hold 17.5 percent.
GM will start to pay back its debt to the U.S. Treasury, which it owes by 2015, as soon as possible, Chief Financial Officer Ray Young told Reuters Television in an interview.
The automaker plans an initial public offering as soon as 2010 and could use some of the proceeds from that stock sale to repay government debt, Young said.
NEW GM, NEW CULTURE?
Henderson, who took over as CEO when predecessor Rick Wagoner was ousted by the Obama administration at the end of March, said the company would be run by a single executive committee, cutting the number of top decision-makers in half.
He also said key decision-makers would meet weekly, a practice adopted by Ford Motor Co CEO Alan Mulally that he has credited with speeding that automaker's turnaround.
GM also eliminated the North American executive team overseeing operations in its troubled home market, which had caused the automaker to lose more than $80 billion since 2005.
Nick Reilly, who has headed Asian operations, will take control of GM's international operations based in Shanghai, a recognition of the growing importance of China at a time when GM is selling its European unit, Opel.
Bob Lutz, 77, GM's outspoken and high-profile former product chief, agreed to stay in a new position with responsibility for marketing, communications and a continued role in vehicle design.
Barclays Capital analyst Brian Johnson said Henderson's maneuvers in part dismantled organizational forms that were a hallmark of Wagoner's tenure.
The organizational steps GM announced are, in the context of the GM culture, relatively significant, even as they appear inscrutable to outsiders, Johnson said.
GM's exit from bankruptcy in 40 days followed a path blazed by Chrysler that culminated in an asset sale that gave control of the smaller automaker to Italy's Fiat SpA.
Ford has avoided seeking emergency U.S. government loans. Ford shares closed up 1.6 percent at $5.72 on Friday. The stock has nearly tripled since hitting a low in early February.
(Reporting by Kevin Krolicki; additional reporting by Caroline Humer and Jui Chakravorty Das; editing by Patrick Fitzgibbons, Lisa Von Ahn and Matthew Lewis)