GM falls into bankruptcy – US government steps in

Auto giant succumbs to 'worst of all options' amid Republican talk of 'socialism'

General motors, the humbled car manufacturer that was once synonymous with America's manufacturing might, will announce today that it is filing for bankruptcy as part of a radical restructuring that will see majority ownership in the company pass to the US government.

Officials said that CEO Fritz Henderson will hold a news conference on the company's future in New York this morning. There was little doubt last night that he will confirm GM will seek bankruptcy protection, a step that would have seemed unthinkable until recently. President Barack Obama will make a statement of his own on GM's fate from the White House, sources said.

The last obstacle to the filing was cleared at the weekend after a slim majority of the company's bondholders agreed to a revised offer whereby debt will be traded for equity. Days earlier a similar deal had been struck with the United Auto Workers union. Bondholders will collectively hold 10 per cent of the company and the UAW 17.5 per cent, which could grow to 20 per cent.

This morning's announcement will mark the largest manufacturing bankruptcy in American history. Both the company itself – which had previously insisted that filing for bankruptcy would be the worst of all options – and officials in the Obama administration will now be hoping that GM will emerge from the process as quickly as possible, perhaps within two months.

Already there are some critics suggesting that henceforth GM should stand for Government Motors. There are Republicans on Capitol Hill ready to lambast the White House for a solution that will cost taxpayers money they are unlikely ever to get back. So far the federal government has given $20bn to the company. By the time the restructuring is over, the bill may rise to $50bn.

"This is a sad day," Senator Richard Shelby, a senior Republican, said of the deal. "This was a great company ... But they're where they are ... they were mismanaged for a long time. Look at the wealth they've lost, the prestige they've lost. It's just not a good day." He said by agreeing to take a stake that might top 72 per cent in a new GM, the government was on "the road to socialism".

But in a television interview, President Barack Obama defended the arrangement. "My preference would have been to stay out of it completely," he said. "But the alternative was to potentially see a liquidation bankruptcy in which an enormous institution with a huge impact on our economy, particularly in Midwestern states, simply gets broken up into pieces, and in the current deep recession that we're in, [that] could have had horrendous effects in terms of the overall economy."

General Motors has been scrambling for a solution since the end of March when the Obama administration gave it just 60 days to finalise its restructuring plans. One of the most important steps came last week when it completed negotiations to end its majority stakeholding in Opel and Vauxhall in Europe, protecting them and their employees from sharing the trauma of bankruptcy.

Details are expected this morning of further plant closures in the US. The company is a shadow of its former self, with an American workforce of 88,000 compared to 618,000 three decades ago when it dominated the market with brands like Chevrolet and Pontiac.

Not that GM is alone in its distress. Chrysler, which has suffered similar contractions, is in bankruptcy already and is expected to learn from a judge this morning whether its proposed marriage with Fiat of Italy meets with approval. If so, the company may emerge from protection within a matter of days.

No one can say whether the medicine of restructuring will be sufficient to save GM but some experts are optimistic. "They have an opportunity now," Arthur Wheaton, the director of labour studies at Cornell University, suggested. "This is a good chance for them."

However, few expect the market for new cars to pick up quickly even if the recession eases this year, as competition from low-cost foreign rivals will continue to be fierce.

GM should emerge from bankruptcy a more competitive and leaner player, however, not least because of its deal with UAW, under which the union agreed to a wage freeze and a no-strike promise that will run until 2015.

Sport
footballLIVE City face Stoke, while Warnock returns to Palace dugout
Arts and Entertainment
books
Life and Style
3D printed bump keys can access almost any lock
gadgets + techSoftware needs photo of lock and not much more
News
i100
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
Inside the gallery at Frederick Bremer School in Walthamstow
tvSimon Usborne goes behind the scenes to watch the latest series
Life and Style
Silvia says of her famous creation: 'I never stopped wearing it. Because I like to wear things when they are off the radar'
fashionThe fashion house celebrated fifteen years of the punchy pouch with a weighty tome
Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
News
i100Steve Carell selling chicken, Tina Fey selling saving accounts and Steve Colbert selling, um...
Life and Style
A picture taken on January 12, 2011 shows sex shops at the Paris district of Pigalle.
newsThe industry's trade body issued the moratorium on Friday
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
News
i100
News
The slice of Prince Charles and Princess Diana's wedding cake and the original box from 29 July 1981
newsPiece of Charles and Diana's wedding cake sold at auction in US
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Junior VB.NET Application Developer (ASP.NET, SQL, Graduate)

£28000 - £30000 per annum + Benefits + Bonus: Harrington Starr: Junior VB.NET ...

C# .NET Web Developer (ASP.NET, JavaScript, jQuery, XML, XLST)

£40000 - £50000 per annum + Benefits + Bonus: Harrington Starr: C# .NET Web De...

Clinical Negligence Solicitor

Highly Competitive Salary: Austen Lloyd: HAMPSHIRE MARKET TOWN - A highly attr...

Network Engineer (CCNP, CCNA, Linux, OSPF, BGP, Multicast, WAN)

£35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...

Day In a Page

Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

The phoney war is over

Russian troops and armour pour into Ukraine
Potatoes could be off the menu as crop pests threaten UK

Potatoes could be off the menu as crop pests threaten UK

The world’s entire food system is under attack - and Britain is most at risk, according to a new study
Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
From Mozart to Orson Welles: Creative geniuses who peaked too soon

Creative geniuses who peaked too soon

After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
Caught in the crossfire of a cyber Cold War

Caught in the crossfire of a cyber Cold War

Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

Salomé: A head for seduction

Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

British Library celebrates all things Gothic

Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

Is the Hard Rock Café worth fighting for?

The restaurant chain's owners are currently embroiled in a bitter legal dispute
Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

In search of Caribbean soul food

Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
11 best face powders

11 best face powders

Sweep away shiny skin with our pick of the best pressed and loose powder bases
England vs Norway: Roy Hodgson's hands tied by exploding top flight

Roy Hodgson's hands tied by exploding top flight

Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

Di Maria and Ronaldo: A tale of two Manchester United No 7s

They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone