Obama promises Government Motors won't run General Motors (full text)
President Obama today made it official. The U.S. government will infuse another $30 billion into GM, the fabled American auto manufacturer that makes Buicks, Cadillacs, Chevrolets and Hummers, and which filed a massive bankruptcy petition today.
But Obama said taxpayers are "reluctant shareholders," and that GM executives, not the government, "will call the shots." Which is a relief to anyone who wants to buy a racy Corvette and doesn't want some Washington bureaucrat picking out the color.
Still, the government ownership comes with a lot of strings -- incentives for energy-efficient cars that so far have not wowed consumers, pay cuts for union workers and the like.
The political upside for Obama: if the deal works, putting GM back on its feet within a few years, he will be a hero to the American voters, especially in the battleground Midwest, whose jobs often revolve around the manufacturing sector. If it doesn't, look for Republicans to decry the Obama takeover of private industry and its disastrous impact on a private sector economy.
For his part, Obama seemed sanguine about his course. "What is good for General Motors and all who work there," he said, "is good for United States of America."
For more details, check out the White House fact sheet below, and the text of the president's remarks this morning.
-- Johanna Neuman
Photo credit: General Motors
THE WHITE HOUSE
Office of the Press Secretary
FACT SHEET: Obama Administration Restructuring Initiative for General Motors
On March 30, 2009, President Obama laid out a framework for General Motors to achieve viability that required the Company to rework its business plan, accelerate its operational restructuring and make far greater reductions in its outstanding liabilities. After two months of significant management engagement, General Motors has developed such a plan and has already begun to make progress toward its achievement. The Company has also secured commitments of meaningful sacrifice from all of its major stakeholder groups, sacrifices sufficient for this plan to proceed forward. As a result, the President has deemed GM’s plan viable and will be making available about $30bn of additional federal assistance to support GM’s restructuring plan. To effectuate their plan, General Motors will use Section 363 of the bankruptcy code to clear away the remaining impediments to its successful re-launch.
For the better part of a century, The General Motors Corporation has been one of the most recognizable and largest businesses in the world. Today will rank as another historic day for the company—the end of an old General Motors, and the beginning of a new one.
General Motors Restructuring – Shared Sacrifice
The President made clear throughout this process that every one of the Company’s stakeholder would be expected to sacrifice, and that none would receive special treatment because of the involvement of the government. The resulting agreement is tough but fair, and has garnered broad support from GM’s major stakeholders:
Operational restructuring: GM is undertaking a significant operational restructuring that will address past failures, dramatically improve its overall cost structure, and allow the company to move toward profitability even if the auto market recovers slowly. As a result of this restructuring, GM will lower its breakeven point to a 10 million annual car sales environment. Before the restructuring, GM’s breakeven point was about 16 million annual car sales.
The UAW has made important concessions on compensation and retiree health care that, while difficult, will help save jobs for active employees, pensions and health care for retirees, and make GM more competitive. In virtually every respect, the concessions that the UAW agreed to are more aggressive than what the Bush Administration originally demanded in its loan agreement with GM. Among other things, the UAW’s existing VEBA – to which GM has a $20bn obligation – will be replaced by a new VEBA as described below.
The Steering Committee to a portion of GM bondholders has confirmed that bondholders representing at least 54% of GM’s unsecured bonds have agreed to exchange their portion of the Company’s $27.1 billion unsecured debt for their pro-rata share of 10% of the equity of new GM, plus warrants for an additional 15% of the new Company. The Steering Committee confirms that the number of individual and institutional bondholders that support this deal is now over 1,000. The bankruptcy court process will be used to confirm this treatment for those bondholders and other unsecured creditors that failed to accept or did not participate in the offer that was accepted by the aforementioned majority.
Painful but necessary restructuring steps will also be implemented. In order to size GM’s footprint to its current share but also allow for volume growth when the economy and the automotive market rebound, GM has planned to reduce its plant operations. Today GM is announcing its intention to close 11 facilities and idle another 3 facilities.
Details on the Creation of New GM:
The newly organized GM will purchase substantially all of the assets of the old GM needed to implement its business plan out of a chapter 11 in exchange for the U.S. Government relinquishing the majority of its loans to GM.
This new GM will establish an independent trust (VEBA) that will provide health care benefits for GM’s retirees. The VEBA will be funded by a note of $2.5 billion payable in three installments ending in 2017 and $6.5 billion in 9% perpetual preferred stock. The VEBA will also receive 17.5% of the equity of New GM and warrants to purchase an additional 2.5% of the company. The VEBA will have the right to select one independent director and will have no right to vote its shares or other governance rights.
The GM qualified pension plans for both hourly and salaried employees will be transferred to the New GM as part of the purchase process.
The U.S. Treasury is prepared to provide approximately $30.1 billion of debtor in possession financing to support GM through an expedited chapter 11 proceeding and transition the new GM through its restructuring plan. The U.S. Treasury does not anticipate providing any additional assistance to GM beyond this commitment. In exchange for funds already committed by the U.S. Treasury and the new injection of $30.1 billion, the U.S. government will receive approximately $8.8 billion in debt and preferred stock in the new GM and approximately 60% of the equity of the new GM. The U.S. Treasury will also have the right to appoint the initial directors other than those that will be selected by the VEBA and the Canadian government.
The Governments of Canada and Ontario will participate alongside the U.S. Treasury by lending $9.5 billion to GM and New GM. The Canadian and Ontario governments will receive approximately $1.7 billion in debt and preferred stock, and approximately 12% of the equity of the new GM. Based on its substantial financial contribution, the Canadian government will also have the right to select one initial director.
The new GM will pursue a commitment to build a new small car in an idled UAW factory, which when in place will increase the share of U.S. production for U.S. sale from its current level of about 66% to over 70%.
Principles for Managing Ownership Stake
Consistent with the goal of clearly limiting the government’s role as a reluctant equity owner but careful steward of taxpayer resources, the Obama Administration has established four core principles that will guide the government’s management of ownership interests in private firms. These principles will apply to the U.S. government’s equity stake in GM:
The government has no desire to own equity stakes in companies any longer than necessary, and will seek to dispose of its ownership interests as soon as practicable. Our goal is to promote strong and viable companies that can quickly be profitable and contribute to economic growth and jobs without government involvement.
In exceptional cases where the U.S. government feels it is necessary to respond to a company’s request for substantial assistance, the government will reserve the right to set upfront conditions to protect taxpayers, promote financial stability and encourage growth. When necessary, these conditions may include restructurings similar to that now underway at GM as well as changes to ensure a strong board of directors that selects management with a sound long-term vision to restore their companies to profitability and to end the need for government support as quickly as is practically feasible.
After any up-front conditions are in place, the government will protect the taxpayers’ investment by managing its ownership stake in a hands-off, commercial manner. The government will not interfere with or exert control over day-to-day company operations. No government employees will serve on the boards or be employed by these companies.
As a common shareholder, the government will only vote on core governance issues, including the selection of a company’s board of directors and major corporate events or transactions. While protecting taxpayer resources, the government intends to be extremely disciplined as to how it intends to use even these limited rights.
GM will continue to honor consumer warranties. This past week, the U.S. Treasury made available the Warranty Support Program to GM and $361 million was funded to a special vehicle available to provide a backstop on the orderly payment of warranties for cars sold during this restructuring period.
The Bankruptcy Process
During this process, GM will continue operating in the ordinary course. From an operating perspective, the day after the filing will not be materially different from the day before the filing. The following parties will be treated as described below:
Employees: Employees will get paid in the ordinary course, including salary, wages and ordinary benefits. Assuming the sale moves forward as expected, Pension Plan and VEBA funding will be transferred to New GM.
Suppliers: GM will seek authority at its “first day” hearing to continue to pay suppliers in the ordinary course. In addition, the U.S. Treasury’s Supplier Support Program will continue to operate, and GM suppliers benefiting from the program will continue to receive that support.
Dealers: GM will seek authority at its “first day” hearing to honor its customer warranties in the ordinary course. Moreover, GM will seek to continue to honor its dealer incentives for those dealers who are expected to continue to be part of GM’s distribution network going forward. There are some dealers that GM has identified that will not continue with GM. It is expected that the terminated dealers will be offered an agreement to orderly wind down their operations over the next 18 months
UAW: The modified labor agreement reached between the UAW and GM will be operative and will be assumed by the New GM.
REMARKS BY THE PRESIDENT ON GENERAL MOTORS RESTRUCTURING
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release
June 1, 2009
Grand Foyer, 11:51 A.M. EDT
THE PRESIDENT: Good morning, everybody. Just over two months ago, I
spoke with you in this same spot about the challenges facing our auto
industry, and I laid out what needed to be done to save two of
America’s most storied automakers -- General Motors and Chrysler.
These companies were facing a crisis decades in the making, and having
relied on loans from the previous administration, were asking for more.
From the beginning, I made it clear that I would not put any more tax
dollars on the line if it meant perpetuating the bad business decisions
that had led these companies to seek help in the first place. I
refused to let these companies become permanent wards of the state,
kept afloat on an endless supply of taxpayer money. In other words, I
refused to kick the can down the road.
But I also recognized the importance of a viable auto industry to the
well-being of families and communities across our industrial Midwest
and across the United States. In the midst of a deep recession and
financial crisis, the collapse of these companies would have been
devastating for countless Americans, and done enormous damage to our
economy -- beyond the auto industry. It was also clear that if GM and
Chrysler remade and retooled themselves for the 21st century, it would
be good for American workers, good for American manufacturing, and good
for America’s economy.
I decided, then, that if GM and Chrysler and their stakeholders were
willing to sacrifice for their companies’ survival and success; if they
were willing to take the difficult, but necessary steps to restructure,
and make themselves stronger, leaner, and more competitive, then the
United States government would stand behind them.
The original restructuring plans submitted by GM and Chrysler earlier
this year did not call for the sweeping changes these companies needed
to survive -- and I couldn’t in good conscience proceed on that basis.
So we gave them a chance to develop a stronger plan that would put them
on a path toward long-term viability. The 60 days GM had to submit its
revised plans have now elapsed, and I want to say a few words about
where we are and what steps will be taken going forward. But before I
do, I want to give you an update on where things stand with Chrysler.
When my administration took office and began going over Chrysler’s
books, the future of this great American car company was uncertain. In
fact, it was not clear whether it had any future at all. But after
consulting with my Auto Task Force, industry experts, and financial
advisors, and after asking many tough questions, I became convinced
that if Chrysler were willing to undergo a restructuring, and if it
were able to form a partnership with a viable global car company, then
Chrysler could get a new lease on life.
Well, that more promising scenario has now come to pass. Today, after
taking a number of painful steps, and moving through a quick,
efficient, and fair bankruptcy process, a new, stronger Chrysler is
poised to complete its alliance with Fiat. Just 31 days after
Chrysler’s Chapter 11 bankruptcy filing, a court has approved the Chrysler-Fiat alliance,
paving the way for a new Chrysler to emerge from bankruptcy in the next
What happens next is in the hands of their executives, managers, and
workers -- as it is for any private company. But what the completion
of this alliance means is that tens of thousands of jobs that would
have been lost if Chrysler had liquidated will now be saved, and that
consumers have no reason at all to worry about a restructuring -- even
one as painful as what Chrysler underwent.
And keep in mind -- many experts said that a quick, surgical bankruptcy
was impossible. They were wrong. Others predicted that Chrysler’s
decision to enter bankruptcy would lead to an immediate collapse in
consumer confidence that would send car sales over a cliff. They were
wrong, as well. In fact, Chrysler sold more cars in May than it did in
April, in part because consumers were comforted by our extraordinary
commitment to stand behind a quick bankruptcy process. All in all,
it’s a dramatic -- an outcome dramatically better than what appeared
likely when this process began.
Now the situation we found at General Motors was very different from
what we found at Chrysler -- largely because GM is a different kind of
company. It is much larger and much more complex, with operations all
over the globe. In this context, GM’s management team -- including its
new CEO, Fritz Henderson, its interim chairman, Kent Kresa, and all of
their colleagues -- have worked -- has worked tirelessly to produce a
plan that meets the strict standards I laid out at the beginning: to
streamline GM’s brands, clean up GM’s balance sheet, and make it
possible for GM to compete and succeed.
Working with my Auto Task Force, GM and its stakeholders have produced
a viable, achievable plan that will give this iconic American company a
chance to rise again. It’s a plan tailored to the realities of today’s
auto market; a plan that positions GM to move toward profitability,
even if it takes longer than expected for our economy to fully recover;
and it’s a plan that builds on GM’s recent progress in making better cars.
As this plan takes effect, GM will start building a larger share of its
cars here at home, including fuel-efficient cars. In fact, if all goes
according to plan, the share of GM cars sold in the United States that
are made here will actually grow for the first time in three decades.
Now, any time a business as large as General Motors goes through a
restructuring, it is extremely difficult to find common ground among
all of the company’s stakeholders. But while the deal that has been
worked out is tough, it is also fair.
It will require the United Auto Workers to make further cuts in
compensation and retiree health care benefits -- painful sacrifices on
top of all that they have already done.
It will require GM shareholders to give up the remaining value of their
shares -- just as they would have had to do in any private
restructuring of this kind.
And it will also provide unsecured bondholders with an equitable
outcome -- an outcome that will let them recover more than the current value of
their claims, and substantially more than they would have recovered if
the government had not intervened and GM had liquidated. That’s why a
majority of GM’s bondholders already support this deal.
Throughout this process, I wanted to ensure that none of GM’s
stakeholders receives special treatment because of our government’s
involvement. That’s why I instructed my Auto Task Force to treat all
of GM’s stakeholders fairly and to ensure that this restructuring was
carried out in a way that was consistent with past precedent -- and it
What we have, then, is a credible plan that is full of promise. But GM
can’t put this plan into effect on its own. Executing this plan will
require a substantial amount of money that only a government can
provide. Considering GM’s extensive operations within their borders,
the governments of Canada and Ontario have agreed to do their part with
an investment in GM’s future, and I want to thank them for doing so. I
also want to thank the government of Germany for working diligently to
reach a Memorandum of Understanding on the sale of a major stake in
GM’s European Division and for providing interim funding that will make
it possible for that transaction to be finalized.
But of course GM is an American company with tens of thousands of
employees in this country, and responsibility for its future ultimately
rests with us. That’s why our government will be making a significant
additional investment of about $30 billion in GM -- an investment that
will entitle American taxpayers to ownership of about 60 percent of the
Now, let me talk about this. I recognize that this may give some
Americans pause. So let me explain as clearly as possible why we are
making this investment. We inherited a financial crisis unlike any
that we’ve seen in our time. This crisis crippled private capital
markets and forced us to take steps in our financial system -- and with
our auto companies -- that we would not have otherwise even considered.
These steps have put our government in the unwelcome position of owning
large stakes in private companies for the simple and compelling reason
that their survival and the success of our overall economy depend on it.
Understand we’re making these investments not because I want to spend
the American people’s tax dollars, but because I want to protect them.
Instead of taking so much stock in GM, we could have simply offered the
company more loans. But for years, GM has been buried under an
unsustainable mountain of debt. And piling an irresponsibly large debt
on top of the new GM would mean simply repeating the mistakes of the
past. So we are acting as reluctant shareholders -- because that is
the only way to help GM succeed.
What we are not doing -- what I have no interest in doing -- is running
GM. GM will be run by a private board of directors and management team
with a track record in American manufacturing that reflects a
commitment to innovation and quality. They -- and not the government
-- will call the shots and make the decisions about how to turn this company around.
The federal government will refrain from exercising its rights as a
shareholder in all but the most fundamental corporate decisions. When
a difficult decision has to be made on matters like where to open a new
plant or what type of new car to make, the new GM, not the United
States government, will make that decision.
In short, our goal is to get GM back on its feet, take a hands-off
approach, and get out quickly.
Exiting a restructuring of this scale, however, requires not only new
investment. It also requires giving GM a chance to start anew by
clearing away the massive past debts that are weighing the company down.
And that’s why earlier today, GM did what Chrysler has successfully
done and filed for Chapter 11 bankruptcy with the support of its key
stakeholders and the United States government.
In all likelihood, this process will take more time for GM than it did
for Chrysler because GM is a bigger, more complex company. But
Chrysler’s extraordinary success reaffirms my confidence that GM will
emerge from its bankruptcy process quickly, and as a stronger and more
competitive company. And I want to remind everyone that if you are
considering buying a GM car during this period of restructuring, your
warrantees will be safe and government-backed.
So I’m confident that the steps I’m announcing today will mark the end
of an old GM, and the beginning of a new GM; a new GM that can produce
the high-quality, safe, and fuel-efficient cars of tomorrow; that can
lead America towards an energy independent future; and that is once
more a symbol of America’s success.
But I want to be honest with you. Building a leaner GM will come at a
cost. It will take a painful toll on many Americans who have relied on
General Motors throughout the generations. So I want to say a word
directly to all the men and women watching today, wondering what all of
this will mean as far as their own lives are concerned.
I know you’ve already seen more than your fair share of hard times. We
saw 400,000 jobs lost in the auto industry in the year before this
restructuring even began. I will not pretend the hard times are over.
Difficult days lie ahead. More jobs will be lost. More plants will
close. More dealerships will shut their doors, and so will many parts
But I want you to know that what you’re doing is making a sacrifice for
the next generation -- a sacrifice you may not have chose to make, but
a sacrifice you were nevertheless called to make so that your children
and all of our children can grow up in an America that still makes
things; that still builds cars; that still strives for a better future.
As our autoworkers and auto communities pass through these difficult
times, we, as a nation, must do our part. That’s why, in March, I
appointed Ed Montgomery Director of Recovery for Auto Communities and
Workers. That’s why two weeks ago Ed announced a green jobs training
program for autoworkers in hard-hit communities. And that’s why last
week Ed and Karen Mills, my Small Business Administration chief,
traveled to Indiana to announce a new plan to provide loans to auto,
RV, and boat dealers to help finance floor plans. That’s why we are
accelerating the purchase of a federal fleet of cars to jumpstart
demand and give the industry a boost at a time when it needs one. And
that’s why I’m calling on Congress to pass fleet modernization
legislation that can provide a credit to consumers who turn in old cars
and purchase cleaner, more fuel-efficient cars. These are important
steps on the long road to overcoming a problem that didn’t happen
overnight and will not be solved overnight.
I recognize that today’s news carries a particular importance because
it’s not just any company we’re talking about -- it’s GM. It’s a
company that’s not only been a source of income, but a source of pride
for generations of autoworkers and generations of Americans. But while
the GM of the future will be different from the GM of the past, I am
absolutely confident that if well managed, a new GM will emerge that
can provide a new generation of Americans with a chance to live out
their dreams, that can out-compete automakers around the world, and
that can once again be an integral part of America’s economic future.
And when that happens, we can truly say that what is good for General
Motors and all who work there is good for the United States of America.
Thank you, everybody.