GM bankruptcy - transition to greener vehicles
30 05 09 - 07:01 GM bound for bankruptcyAEN News
New York - General Motors Co. (NYSE: GM) is bound for bankruptcy after the automaker failed to come to terms with bondholders.
GM has until June 1st to convince at least 90 percent of the bondholders to convert to equity. The auto union would have owned 39 percent of GM while the government would own 50 percent. The UAW had voted to accept the proposal but GM has so far been unable to convince enough debt holders to go along with the plan. Last-minute concessions with the UAW over its retirement health benefits cut the auto union's stake to 17 percent while the Obama administration says taxpayers will end up owning 70 percent of the auto giant for the time being. Government ownership will be reduced by divesting stock to other stake holders as the administration has stated that they have no intention of running a new auto company that emerges from any reorganization.
The path to bankruptcy became smoother with the government's offer to repay secured lenders in full, still Geithner's plan would mean the government would put up as much as $50 billion to cover General Motors reorganization and operating expenses in order for the company to survive.
A reorganized GM would work with the Department of Transportation and Energy Department under the Obama administration pushing for lofty goals of fuel efficiency and dramatic cuts in foreign imports of oil. To go green, one of the obstacles was the auto industry itself which was slow to changes it saw as being radical and expensive.
A concern was going from the gas-guzzling yet highly profitable SUV market to a lightweight, inexpensive alternative fuel hybrid or all-electric and finding a willing market in US consumers accepting it. Debtors were also concerned as the cost to convert would leave behind the prior investments Detroit had made. Until the government mandated better fuel economy automakers had some degree of security in knowing how to gradually shift their production into the hybrid vehicle market. But the recession changed all that overnight. The SUV market collapsed while union contracts became overbearing to the big three which meant cuts in wages and benefits.
The payback for union workers is a new auto industry geared toward a more rapid switch to hybrid vehicles. The Energy Department just now began an aggressive shift in policy away from foreign oil to a domestic policy of alternative energy and now the Department of Transportation is set to jack mileage requirements that make existing vehicle manufacturing plants outdated.
Shares of GM were down 18 cents, or 1.5 percent, at $1.26 at 10:45 am ET Wednesday.
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