General Motors set to file for bankruptcy

GENERAL Motors, the world’s second biggest car manufacturer, is poised to file for bankruptcy today after bondholders agreed to swap the company’s $27 billion debt for equity.

GM, which has been surviving on $20 billion in government loans, hopes to emerge from bankruptcy protection in as little as 30 days as a radically restructured company. Unions have agreed to a pay cut and the federal government has promised a further $30 billion for restructuring in a deal that gives Washington a 72.5 per cent stake in GM.

President Barack Obama will give details of the restructuring plan today.

The bankruptcy follows a deal at the weekend for Canadian car parts maker Magna International to buy GM Europe’s Opel and Vauxhall brands.

Germany’s economics minister has expressed grave doubts that the Opel rescue deal, agreed in principle on Saturday morning in Berlin, will secure the company’s long-term future.

The agreement will see General Motors (GM) sell a 55 per cent take in its European subsidiary to Magna, an Austrian-Canadian car parts company and the Russian state-owned lender Sberbank.

Germany will provide €4.5 billion in loans and guarantees – half from Berlin, half from federal states – to keep the company afloat until the deal closes in the autumn.

Magna has promised to keep open all German Opel plants and to cut just 10 per cent of its 25,000 workforce. The future looks less rosy at Opel plants elsewhere in Europe, particularly at Vauxhall in Britain, where up to one job in five may go.

The Opel deal with Magna, always seen in Berlin as the preferred bidder, left Fiat of Italy out in the cold. Chief executive Sergio Marchionne left Berlin on Friday, saying the all-night talks were “taking on the air of a Brazilian soap opera”.

The involvement in the deal of Russia’s biggest bank, as well as Russian car maker GAZ, has prompted speculation that the deal might involve a shift in Opel production to GAZ factories in Russia.

Under its restructuring plan in the US, GM will shed billions of dollars in debt, gain billions in workforce savings, close more than a dozen factories and cut its network of car dealers.

Declining car sales mean that it could be a long time before the company, once the biggest in the US, returns to profitability. Sales of all new vehicles in the US have dropped 40 per cent since January to an annualised rate of fewer than 9.5 million. US car sales peaked in 2000, when more than 17 million new vehicles were sold. GM has lost $88 billion since 2004.

The Obama administration, which will be the majority shareholder in both GM and Chrysler, last month unveiled new fuel-efficiency standards for US-made cars aimed at reducing oil consumption.