- A once proud and dominant General Motors, which at its peak controlled half the American auto market, filed for bankruptcy court protection on June 1 in an historic act that will see federal taxpayers own 60% of a smaller, reorganized company.

- With the bankruptcy, GM will get a chance at a new start. Management and its government overseers hope GM can wipe away decades of outsized retiree and labor costs and brand-and-marketing strategy, both of which were designed for an era that had long passed. The result will be a much smaller GM, one that won't even challenge Toyota (TM) for the crown of world's biggest car company. But with far less debt and a reworked labor contract that will get costs closer to foreign-owned auto plants in the U.S., the new GM has a shot at regaining profitability and becoming competitive again.

- The plan is to have the new GM emerge from court protection relatively quickly, perhaps within 60 to 90 days. Meanwhile, some of the weak brands—Hummer, Saab, Saturn, and Pontiac—plus any unwanted assets, such as factories, would stay with the old company, which would be liquidated. All of those brands are already for sale, except for Pontiac, which will be shut down.

- The federal government will hold 60% of the new company's stock in exchange for forgiving all but $9 billion of the loans it extended. Similarly, the governments of Ontario and Canada will loan GM $9.5 billion and will forgive all but $1.7 billion and keep 12% of the stock in the new company. By the time GM is on its feet, the U.S. government will have loaned it about $50 billion.

- GM will also get a new board. The government will have input as a major shareholder in the new GM. Canada and the UAW's health-care trust will each get a seat on the board.

- There will be pain for many workers, dealers, and creditors, though. If the bankruptcy court agrees with management's plan, GM's bondholders would take a big haircut even if the company's stock has some value; the steep discount on their holdings remains the biggest hurdle to a fast reorganization. While GM has greatly reduced its workforce, about one-third of GM's remaining 54,000 factory workers could still lose their jobs since the company plans to close 11 more plants, though the workers will likely be bought out and sent into retirement. And if GM's stock doesn't do well, the UAW will have to further cut medical benefits for workers covered by the union's own trust. On the retail front, GM also plans to get rid of 1,600 of its 4,800 dealers by the end of 2010.

*** There is even more to the article but in the interest of time and space, I'm going to stop there.

http://www.businessweek.com/bwdaily/dnflash/content/may2009/db20090531_2...