GM files for bankruptcy, asks for quick action

General Motors Corp filed for bankruptcy on Monday, as the Obama administration took the first steps in court to try to revive a failed icon of American industry by extended unprecedented funding and oversight.

The bankruptcy filing was the third-largest in U.S. history and the largest ever in U.S. manufacturing.

The decision to push GM into a fast-track bankruptcy and provide $30 billion of additional taxpayer funds to restructure the automaker is a huge gamble for the Obama administration.

But in a sign of progress in the government's high-stakes effort, a bankruptcy judge approved the sale of substantially all of U.S. automaker Chrysler's assets to a group led by Italy's Fiat SpA.

In the wake of its widely anticipated bankruptcy filing, GM stock -- once considered a rock-solid blue chip -- was being removed from the Dow Jones industrial average and delisted by the New York Stock Exchange.

This is proof that GM has failed, said automotive historian Bob Elton. They have been failing for years but have covered it up. Now they've come to the end of the line.

Chrysler's bankruptcy, also financed by the U.S. Treasury, has been widely seen as a test run for the much bigger and more complex reorganization of GM.

President Barack Obama said on Monday he was confident GM could emerge quickly from bankruptcy, saying the government had been thrust into a reluctant position as controlling shareholder.

Our goal is to get GM back on its feet, take a hands off approach and get out quickly, Obama said.

The administration's ambitious plan for GM is for a quick sale process that would allow a much smaller company to emerge from court protection in as little as 60 to 90 days.

In bankruptcy, GM will be divided in two: a leaner New GM and Old GM -- which will include excess plants and equipment that will eventually be liquidated under court protection.

GM said in a legal filing on Monday that the transaction to create the reorganized company would have to be quick to keep the automaker from losing its best chance to restructure.

The vicious cycle of frozen credit markets, growing supplier uncertainty and lack of consumer confidence has the potential to unravel the automotive industry and short-circuit the creation of New GM, Chief Executive Fritz Henderson said in a court filing.

On the first day in bankruptcy court, lawyers for GM said they would ask Judge Robert Gerber to approve its proposed sale of its strongest assets in just 30 days.

GOVERNMENT LIFELINE

Since the start of the year, GM has been kept alive by U.S. government funding as a White House-appointed task force vetted plans for a sweeping reorganization that will be undertaken with $50 billion in federal financing.

By taking a 60 percent stake in a reorganized GM, the Obama administration is gambling that the automaker can compete with the likes of Toyota after its debt is cut by half and its labor costs are slashed.

The federal government of Canada as well as the province of Ontario agreed to provide another $9.5 billion to GM in a late addition to the plans for the bankruptcy.

GM plans to close 11 U.S. facilities and idle another three plants. It has not provided an updated target for job cuts but had been looking to cut 21,000 factory jobs from the 54,000 unionized workers it now employs in the United States.

The GM plant closings will cut between 18,000 and 20,000 UAW workers in the United States.

The GM that many of you knew, the GM that let too many of you down, is history, said Henderson at a news conference in New York. Today marks the beginning of what will be a new company, a new GM dedicated to building the very best cars and trucks, highly fuel-efficient, world-class quality, green technology development.

The UAW would have a 17.5 percent stake in the New GM. The Canadian government would own 12 percent and GM bondholders would receive 10 percent. In its filing, GM also provided an updated list of its major trade creditors including Starcom Mediavest Group and Delphi Corp.

Kent Kresa, who became GM chairman at the end of March, said he was already interviewing candidates to be directors for the new board at GM and was in contact with Steve Rattner, who heads the White House's autos task force, as part of that process.

RELUCTANT INVESTOR

Officials involved in the planning for GM said the White House was a reluctant investor in GM, but had to prevent a liquidation that analysts say would have cost tens of thousands of jobs at a time when the economy is mired in recession.

GM alone employs 92,000 in the United States and is indirectly responsible for 500,000 retirees.

U.S. officials said there was no plan to provide any further funding for GM and insisted that all of the Detroit Three could survive. Ford Motor Co has not sought emergency federal aid.

In the case of GM, the goal of restructuring is to allow it to return to profitability if U.S. industrywide auto sales recover even slightly to near 10 million units annually.

Until now, to stop losing money, GM had counted on a recovery to the 16 million mark the industry last saw in 2007, officials said.

GM's bankruptcy, which was approved by the automaker's board after a weekend of deliberations, is the most carefully orchestrated Chapter 11 filing in the history of American business.

The automaker's final descent started with an emergency aid announcement by the administration of President George W. Bush on December 19. It accelerated in late March when the new Obama government gave the company 60 days to restructure.

While New GM is expected to emerge quickly from court protection, its shuttered plants, stranded equipment and other spurned assets would be left to liquidation in bankruptcy.

Al Koch, a managing director at advisory firm AlixPartners LLP, will be appointed chief restructuring officer in charge of liquidating those GM assets.

A veteran restructuring adviser, Koch has had prominent roles in Kmart Corp's restructuring and other turnarounds.

Over the weekend, GM won support for the government's plan from investors representing 54 percent of the company's $27 billion in bondholder debt.

Bondholders could take up to 25 percent of GM if it recovers to be worth what it was in 2004.

Founded in 1908, GM rose to dominate the U.S. and global auto industries under the stewardship of pioneering Chief Executive Alfred Sloan, who famously pledged that the automaker would deliver a car for every purse and purpose.

By the mid-1950s, at the peak of its success, GM had some 514,000 employees. It accounted for about half of U.S. car production and its sales were twice as large as the No. 2 corporation, Standard Oil.

Technology bellwether Cisco Systems will replace GM on the Dow. Insurer Travelers Co will replace Citigroup Inc. Dow Jones said the changes will be effective as of June 8. GM's stock fell to a low of 48 cents on Monday, a level last seen during the Great Depression.

The bankruptcy case is In re: General Motors Corp, U.S. Bankruptcy Court, Southern District of New York, No. 09-50026.

(Additional reporting by David Bailey, Soyoung Kim, David Lawder, John Crawley, Leah Schnurr, Poornima Gupta, Walden Siew and Tom Hals; Editing by Patrick Fitzgibbons, Maureen Bavdek, Matthew Lewis, Gary Hill)