General Motors Corp, the world’s largest automaker until its 77-year reign ended in 2008, plans to file for bankruptcy protection on June 1 and sell most of its assets to a new company, people familiar with the matter said.
The US Treasury will provide financing for GM while the asset sale is arranged to a company formed by the government, according to a regulatory filing today. June 1 was the deadline set by the US for GM to restructure outside court.
GM, which would follow Chrysler LLC into bankruptcy, plans to build a new business around assets such as the Cadillac and Chevrolet brands. The 100-year-old automaker, a victim of tumbling sales, fell short in a bid to cut debt by $44 billion by June 1.
“By freeing GM of tens of billions of dollars in debt, bankruptcy will give it a new lease on life,” Lynn LoPucki, a law professor at the University of California, Los Angeles, said before the news of Detroit-based GM’s strategy.
The people familiar with GM’s plans didn’t specify where the automaker might make its Chapter 11 filing. They asked not to be identified because the details aren’t public.
GM’s bankruptcy will be the third-biggest in US history after Lehman Brothers Holdings Inc and WorldCom Inc, based on GM’s reported global assets of $91 billion and total liabilities of $l76.4 billion as of Dec. 31. Chrysler, which sought court protection on April 30, listed assets of $39 billion.
The filing would end the suspense for GM, which said it expected to declare bankruptcy after failing to get enough support for a debt-for-equity exchange on $27.2 billion in unsecured bonds.
The automaker, the world’s largest until ceding the crown to Toyota Motor Corp, has been surviving with the aid of $19.4 billion in US loans. The US plans to fund GM’s trip through bankruptcy with about $50 billion, which includes the current borrowing, the company said in a statement.
GM plans to scrap Pontiac models and sell its Hummer and Saturn units, while dropping as many as 2,400 US dealers by the end of 2010.
