Resources for Covering General Motors' Bankruptcy Filing

By Al Tompkins

Monday morning, General Motors filed for bankruptcy. When the United Auto Workers union agreed to concessions on Friday, it was the final act needed to move General Motors through bankruptcy as quickly as an international behemoth can go through the courts.

The point of bankruptcy is to allow GM to emerge with only its more profitable plants, brands, dealerships and contracts. GM would shed unprofitable plants and liabilities in court. The bankruptcy will likely take at least 60 to 90 days.

There are two main kinds of bankruptcy -- Chapter 7, in which the debtor tries to walk away from what it owes, and Chapter 11, which is what GM filed. Chapter 11 is all about "reorganization." The debtor tries to settle with the people it owes for far less than the actual debt.

The company then comes out of Chapter 11 free of debt and ready to try again. The company really holds all the cards because if creditors do not play along, the company can just say it will file Chapter 7, leaving the creditor with nothing as opposed to a little bit of something.

The agreement with the UAW entails several changes:

• There can be no strike until 2015.

• Wages will be frozen.

• There will be no more bonuses.

• The UAW retiree health program trust will own 17.5 percent of GM (post-bankruptcy.) In exchange, the trust takes over retiree health costs, a $20 billion dollar cost lifted from GM's books.

The U.S. Treasury has lent $19.4 billion in loans to GM. The Canadian government, meanwhile, was expected to offer about $9 billion in support.

In addition to shareholders who will be left with just about nothing, parts suppliers will take a hit. Suppliers, who may be in your local communities, are already failing and will continue to do so, experts predict.

The Detroit News reported:

"With both GM and Chrysler shutting down most of their North American factories, already cash-strapped suppliers are being pushed to the brink. He said many have already reached their credit limits or are on the verge of violating loan covenants.

"Even a resumption of production will not solve their problems immediately. Under the terms of most contracts, automakers are not required to pay for components until two or even three months after they are shipped.

"How suppliers are going to come up with the cash to get their lines running again is a key question that will have to be answered by the federal government, Michael Hedge of Hedge & Co. said. The existing government program that allocated $5 billion only covered bills for merchandise already shipped."

The Associated Press said:

"GM said it plans to reopen a shuttered U.S. factory to build subcompact cars. The retooled factory would be able to build 160,000 cars a year and create 1,200 jobs, offsetting some of the 21,000 that will be lost when GM closes 14 factories by the end of next year."

Additional Resources

What would a new GM look like? The Detroit Free Press has provided some insight.

SmartMoney has taken a look at 12 big moments in GM's history.

Here is a time line of GM's history and a list of UAW offices nationwide.