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 that is majority-owned by the U.S. Treasury.
The closing documents were signed early Friday by representatives of the government and GM executives at the law firm of Weil, Gotshal & Manges, GM's bankruptcy counsel.
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.
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.
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 legacy costs are gone. The challenge in the future is how to approach a marketplace that has been burned by GM, said Pete Hastings, senior vice president and 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.
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 on in a new position with responsibility for marketing, communications and a continued role in vehicle design.
Dennis Virag, an analyst at Automotive Consulting Group, said Henderson would be judged by GM's new board and others on his success in reforming a corporate culture that was blamed for having stymied innovation and bred inefficiency.
Does he have the habits of the old GM or is he capable of providing the new leadership? I think he has to demonstrate that, he said of Henderson.
Chrysler exited bankruptcy a month ago after blazing a precedent-setting trail for GM by following an asset sale plan that gave operational control of the smaller automaker to Italy's Fiat SpA.
GM rival Ford Motor Co has avoided seeking emergency U.S. government loans and Chief Financial Officer Lewis Booth told Reuters on Thursday that the automaker remains focused on improving its balance sheet by somewhat less extreme methods than going through bankruptcy.
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.
GM stock, which now represents an ownership interest in Motors Liquidation, rallied 38 percent on Friday to $1.15. GM has said the equity is expected to have no recovery and Young said Friday he was concerned that the stock continued to trade at such levels.
Ford shares were up 8 cents or 1.4 percent at $5.71 on the New York Stock Exchange on Friday afternoon. 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)