The day GM lived in infamy.....

Yesterday was a defining day in American business. General Motors, once a venerable American icon of industrial prowess, filed Chapter 11 for bankruptcy protection. This is after no settlement is reached in terms of the restructuring plans, and bondholders rejected the terms offered. For the record, it is the 3rd largest filing in US, and largest in US manufacturing history.

Let's step back a bit. GM, founded in 1908 in Flint, Michigan is bankrupt after 101 years. It has provided jobs for generations of Americans who depended on its generous pension plans, and a shot to move into the middle class. GM is betting to emerge from bankruptcy after 30 days as a "leaner and meaner" new GM. By that, I would guess selling its assets as quickly as possible, and to preserve cash. It has $172.8 billion in debt and $82 billion in assets, which would make any company insolvent at the bank's discretion.

The Obama administration is providing $30 billion of funding to help it restructure, and get out of bankruptcy asap. It has effectively made Uncle Sam to be the majority shareholder again as being practised in other "distressed" financial firms. The CEO, Henderson, said "The GM that many of you knew, the GM that let too many of you down, is history". "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". That is the new vision for GM. Whether this vision could succeed in the midst of the Great Recession is still a known unknown.

The CEO also cautioned in court filing, "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". This summed up the risks pretty well. Let's hope in the next 30 days, some deals could be hammered out. Otherwise, it will have repercussions to the American economy, and the stock market will react nastily. Certainly, the "green shoots" will turn to tumbleweed if the restructuring plans fail.