NEW YORK - A bankruptcy judge has ruled that General Motors
Corp. can sell the bulk of its assets to a new company, potentially
clearing the way for the automaker to quickly emerge from
bankruptcy protection.
U.S. Judge Robert Gerber said in his 95-page ruling late Sunday
that the sale was in the best interests of both GM and its
creditors, whom he said would otherwise get nothing.
"As nobody can seriously dispute, the only alternative to an
immediate sale is liquidation - a disastrous result for GM's
creditors, its employees, the suppliers who depend on GM for their
own existence, and the communities in which GM operates," Gerber
wrote in his ruling.
An appeal is expected. A Chicago law firm representing people
who have sued GM in several auto accident cases filed paperwork
Monday saying it would appeal to U.S. District Court in New York.
The deadline to appeal is noon Thursday, after which point Gerber's
order takes effect and the sale is free to close.
Attorneys for some of GM's bondholders, unions, consumer groups
and individuals with lawsuits against the company have said their
needs have been pushed aside in favor of the interests of GM and
the government.
GM's government-backed plan for a quick exit from Chapter 11
hinges on the sale, which will allow the automaker to leave behind
many of its costs and liabilities. The Treasury Department has
vowed to cut off funding to GM if the sale doesn't go through by
July 10.
Steve Rattner, a top aide to Treasury Secretary Timothy Geithner
and the head of the Obama administration's auto task force, said
the government was "confident that his decision will stand and the
sale of GM's assets to new GM will proceed expeditiously."
The ruling comes after a three-day hearing that wrapped up
Thursday, during which GM and government officials urged a quick
approval of the sale, saying it was needed to keep the automaker
from selling itself off piece by piece.
"Now it's our responsibility to fix this business and place the
company on a clear path to success without delay," GM CEO Fritz
Henderson said in a statement early Monday.
Last month, a group of bondholders and others took their
objections to Chrysler LLC's sale to Fiat Group SpA all the way to
the Supreme Court, which declined to rule on them. Still, the
proceedings delayed the Auburn Hills, Mich.-based automaker's exit
from bankruptcy protection.
Consumer groups have cautioned that people injured by a
defective GM product before June 1, when the automaker filed for
bankruptcy, would have to seek compensation from the "old GM,"
the collection of assets leftover from the sale, where they would
be less likely to receive compensation.
Joanne Doroshow of the Center for Justice & Democracy said in a
statement the issue "is far from over."
"It is morally reprehensible that GM will pay for injuries and
deaths that occur after the bankruptcy process, but not for the
hundreds of victims who have already been hurt by defective GM
cars," Doroshow said.
The "old GM," which will be known as Motors Liquidation Co.,
will include a smattering of properties, several of which are
facilities already slated to be closed. They will be sold to the
highest bidder under court supervision.
Other assets to be filed under the old GM include brands like
Hummer, Saturn and Saab, for which GM has lined up buyers. They
also include all current GM common stock, which - despite its
active trading on over-the-counter markets - will soon be
worthless.
The Detroit car maker's Chapter 11 filing was the fourth-largest
in U.S. history.
Even with less debt, fewer liabilities and a reduced number of
dealerships and brands, GM will operate in an environment where
fewer American are buying cars. At the current pace, automakers
will sell around 9.7 million vehicles this year. That's a reduction
from sales of more than 16 million vehicles as recently as 2007.
In June, the automaker captured 20.3 percent of the U.S. market.
GM has estimated that it can maintain a market share between 15 and
17 percent, reflecting its plan to sell off three brands and end
its Pontiac line.
GM has several new cars coming to market next year, including
the Chevrolet Volt, a plug-in hybrid electric car. The Volt might
be a promising vehicle, but with an expected $40,000 price tag it
might only be a niche player, said James E. Schrager, clinical
professor of entrepreneurship and strategy at the University of
Chicago Graduate School of Business.
Upcoming small-car models such as the Chevy Cruze and Spark may
fare well, but will face heavy competition from foreign automakers
already in that segment of the market and from Ford Motor Co.'s new
Fiesta, which the company has already started advertising.
Overall, GM's major challenge will be winning back customers who
have migrated to foreign competitors. Some newer GM models have
received good reviews for quality and performance, but that hasn't
persuaded enough consumers to buy GM cars.
"The problem is the status of General Motors' brands,"
Schrager said. "They have to have some really breakthrough
products that work and resonate with consumers. And they may have
to slowly, over time, turn the image around."
The company is expected to receive $50 billion in taxpayer
funds. GM received nearly $20 billion in taxpayer funds before its
bankruptcy and Rattner said the government has provided between $10
billion to $11 billion to finance the bankruptcy. He said an
additional $19 billion in financing would be provided to GM by the
end of the year.
In exchange for those funds, the government will own about 61
percent of the "new GM." The Obama administration has said it
does not plan to interfere with the day-to-day running of the
company, though government has been involved in the selection of
the new company's 13-member board of directors and change of
control transactions.
The United Auto Workers union gets a 17.5 percent stake through
its health care trust for retirees and has selected Stephen Girsky,
a former GM adviser and Morgan Stanley analyst, to serve on the
board. The Canadian government, which will control an 11.7 percent
share, also will pick one member.
Henderson, who succeeded former CEO Rick Wagoner in March when
the Obama administration forced Wagoner to resign, has said he
expects to remain at the helm of the automaker as it comes out of
bankruptcy.
Rattner, in a conference call with reporters, said he expected
the new GM board members to be seated "over the next few weeks."
"We are not going to operate as a parallel board - we are not
going to micromanage or get involved in day to day decisions,"
Rattner said of the government's role in the auto company.
The old GM will remain an entity until all of the facilities are
sold off, a process that could take months or years to complete.
The government has said it plans to provide about $1.18 billion to
fund the wind-down process.
---
Associated Press auto writers Dan Strumpf in New York, Ken
Thomas in Washington and Kimberly S. Johnson and Tom Krisher in
Detroit contributed to this report.