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Jun 1, 2009

General Motors to File for Bankruptcy

GM - the biggest car manufacturer in the world until last year - will file for bankruptcy in the US courts as it seeks to restructure its stricken operations.

The US government is said to be planning to take a 60% stake in the Detroit company under a deal to provide an additional £19 billion in aid to help GM emerge from bankruptcy.

President Barack Obama is preparing to make a White House address in which it is understood he will reassure that a revived GM will come out of the restructuring process.

It is also thought that he will stress the government's commitment to staying out of the carmaker's business decisions, in spite of its majority ownership stake.

The Canadian government is also reportedly taking a 12.5% stake in GM and a United Auto Workers trust for health care expenses would get 17.5%.

Holders of GM corporate bonds are expected to receive a 10% stake, with the possibility of increasing their share to 25%.

GM, maker of Chevrolet, Buick and Cadillac cars and trucks, is expected to file for bankruptcy protection at 8am in the US (1pm BST). The move will not affect Magna International's rescue deal to buy GM Europe and the Vauxhall and Opel brands.

The bankruptcy - the fourth-largest of its kind in the world - is set to trigger an intensive two to three-month restructuring that will see thousands of US workers axed, with many dealerships and factories also closed.

GM plans to name veteran turnaround specialist Al Koch to serve as its chief restructuring officer to help the company through bankruptcy protection.

He will lead the separation of the carmaker's assets into a "new GM" and the remaining parts of the company that will form "old GM".

The "old GM" company is then set to be wound down once the company emerges from bankruptcy.

GM was founded in 1908 by William Durant, who brought several car companies under one roof and developed the strategy of "a car for every purse and purpose" in the 1920s that was designed to appeal to consumers of all ages and financial status.

The group commanded more than half the US car market in the 1950s and employed more than 600,000 workers in the late 1970s, making it the largest private employer in the country.

It is still one of America's largest employers today, but will come out of its Chapter 11 process a far leaner firm, focusing only on its four core brands - Chevrolet, Cadillac, Buick and GMC.


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