GM sale cleared, path opens to exit Chapter 11

7/9/2009

DETROIT The path is now clear for General Motors to leave bankruptcy protection in record time as a leaner company that is better equipped to compete in a brutal global auto market.

On Thursday, a judge s order allowing GM to sell most of its assets to a new company went into effect, despite a last-minute appeal by plaintiffs in a product liability case.

GM spokeswoman Julie Gibson said U.S. Bankruptcy Judge Robert Gerber s order became effective at 12 p.m. EDT. GM lawyers are working on paperwork to close the sale as quickly as possible, after which GM would leave bankruptcy protection.

GM CEO Fritz Henderson will hold a news conference Friday morning to explain executive cuts, management changes and the company s plan to make money by emphasizing quality and fuel economy.

Once the world s largest and most powerful automaker, the new GM will become government-owned, but leaner and greener, cleansed of debts and burdensome contracts that nearly dragged it into liquidation. But the new company faces tough international competition and the worst auto sales market in more than 25 years.

John Pottow, a University of Michigan Law School professor who specializes in bankruptcy, said opponents of the sale had little legal recourse to block it because their issues were shot down by higher courts in Chrysler s bankruptcy case.

It s done, Pottow said. I knew they were dead as soon as the Chrysler case was decided.

He expects GM to close the deal and emerge from bankruptcy on Thursday in 39 days, a record for a company its size, he said.

GM spokesman Tom Wilkinson said he could not give a time frame for when the sale will close.

After clearing bankruptcy court, the new GM will focus only on four core brands, Chevrolet, Cadillac, Buick and GMC. The company is in the process of selling Saturn, Saab, Hummer and its Adam Opel GmbH unit in Europe, and it will discontinue Pontiac by the end of the year.

GM would not have been able to clear bankruptcy court at such a high speed without help from its crosstown rival Chrysler Group LLC, which exited bankruptcy on June 10 after 42 days.

Pottow said Chrysler s case set favorable legal precedents in previously uncharted territory of bankruptcy law.

The U.S. government, which will wind up loaning GM up to $50 billion to save its roughly 88,000 U.S. jobs, also played a significant role through the Treasury Department s auto task force, Pottow said.

It s amazing what you can do when you have a government task force convened to help your company, he said.

The government provided bankruptcy financing, and the task force served the role of management consultant, telling GM that its early restructuring plans were too rosy and demanding further cuts, he said.

The parts of the company not moving over to the new company will become part of old GM, a collection of assets and liabilities that will be liquidated over the next few years and sold off to pay the company s various creditors including people with pending lawsuits.

The assets range from the expected things, such as closed plants and other facilities, to more quirky items including a golf course in New Jersey and a church in Indiana.

The government has pledged $1.18 billion to help fund the wind down.