GM heads to Chapter 11 bankruptcy.

June 1, 2009 9:58 a.m.
The unthinkable has happened. GM first established in 1908 as a holding company for Buick by Will Durant with over 230,000 employees world wide, manufacturer of over 20,000 cars on a daily basis and the source of health care and retirement benefits for 1 million Americans, a major icon of American and global capitalism has been forced into chapter 11 bankruptcy.
The first car I ever owned was a GM 1958 Pontiac Strato Chief that my brother Paul and I bought as an 8 year old used car in the 1960s. It was a magnificent beast with an enormous interior, sleek styling and a body built like a tank.Within a year or two it lost its reverse gear. But we still appreciated it nonetheless.A lot of cars have fallen by the wayside since.

GM in 1980 accounted for 44 % of the U.S. car market. Today it accounts for 22.5 %.



It is expected and hoped to emerge from chapter 11 in 60-90 days as a much smaller firm owned by the American government, (60 %), the Canadian and Ontario Government (12%), the autoworkers union (17.5 %)through their health trust VEBA and former bondholders who will receive the remaining shares in exchange for over 27 billion dollars in corporate bonds that they now hold. 54 % of the bondholders in terms of the value of bonds outstanding have agreed to this deal. The bondholders represent various banks and investment funds as well the autoworkers and other unions.

VEBA will be funded in three installments paid until 2017 and will also receive 6.5 billion in 9 % perpetual preferred stock.They receive 17.5 % of the stock of the new GM plus warrants for another 2.5 %. The Canadian   and Ontario Governments are lending 9.5 billion to new GM in return for 1.7 billion in preferred shares and 12% in equity.The US government is advancing 50 billion and receiving 8.8 billion in preferred stock and 60 % of the shares.
The US in its official statement and fact sheet stressed it has no desire to interfere with the daily management of the company and will sell its shares when that becomes feasible in the years to come.

The European division of GM known as Opel   which also includes the British car manufacturer Vauxhall is being sold to Magna international, the Canadian auto parts manufacturer founded by Canadian entrepreneur Frank Stronach and a Russian bank Sberbank who will receive 1.5 billion euros in bridge financing from the German government in exchange for a commitment to keep plants in Germany running.It is expected that Magna Opel will be welcomed as a producer of cars for the Russian market as well.

These are amazing developments although not unexpected in recent weeks as the nature of the restructuring had become clear in the media.But if someone had predicted as recently as two years ago that what had once been the greatest manufacturing firm in America would end up being owned and run as co-venture by the American government, the Canadian government, the auto workers trade unions and some bondholders they would have been dismissed as a raving mad socialist.

This a major event whose true significance will only sink in gradually.North American capitalism has moved in the direction of European style capitalism
where partnership between the private and state sectors with a responsible role for unions is a normal phenomenon.   We shall see how long this partnership model lasts and the quality of the outputs that it produces.

I wish it well. I also wish the Fiat new Chrysler partnership well as both the Canadian and American governments and the autoworkers union has a major interest in this co-venture as well.

Finally congratulations to Frank Stronach for realizing his dream of becoming a Canadian and European   based car manufacturer.This is an exciting development for Canadian business.

Whether all these new ventures can survive the difficult days ahead is not yet clear.

But there can be no doubt that the era of laissez-faire and neo-con inspired deregulation and privatization has now ended with a bang