The federal and Ontario governments will own 12 per cent of a restructured General Motors Corp. that will file for bankruptcy protection this morning, the culmination of an historic fall from grace for the one-time largest auto maker in the world and one of the giants of American capitalism.
The two governments will lend $9.5-billion (U.S.) to help GM through a restructuring under Chapter 11 of the U.S. bankruptcy code. They will receive preferred shares in GM, plus $1.7-billion in debt.
Washington, Ottawa and Ontario will provide about $40-billion on top of $19.5-billion the United States government has already advanced to GM and $500-million (Canadian) the two Canadian governments have lent to General Motors of Canada Ltd.
Ottawa will receive the right to appoint one member to GM's board of directors.
The U.S. government, which will hold 60 per cent of the new company that will emerge from bankruptcy protection, made the announcement last night.
Negotiations were still under way late last night on the fate of GM Canada and whether it will file for protection in this country under the Companies' Creditors Arrangement Act.
The auto maker is aiming for a "surgical" bankruptcy process that will enable it to emerge after 60 to 90 days as a lean company that has shed unprofitable divisions, eliminated tens of billions of dollars in private-sector debt and ratcheted down labour costs to become more competitive with Japanese-based auto makers operating in North America.
The Chapter 11 filing will represent the culmination of a tectonic shift that is reshaping the nature of the auto industry in a crisis that is afflicting car makers around the world.
U.S. President Barack Obama is scheduled to address the situation later this morning, followed by a news conference by GM CEO Fritz Henderson.
Aides said that Mr. Obama plans to tell the nation today that he believes GM can be brought back from the brink of insolvency, even if the company looks almost nothing like the titan of old, the New York Times reported last night.
Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty plan to hold a joint news conference this afternoon in Toronto.
The Chapter 11 filing underlines the company's long decline from the world's mightiest auto maker to a ward of the state.
The GM decision is just one element in an epochal day in the history of the North America auto industry. While the U.S. and Canadian governments take a majority stake in the 100-year old GM, Chrysler LLC is set to emerge from its own Chapter 11 bankruptcy filing as a unit of Italian auto maker Fiat SpA. That will leave Ford Motor Co. as the only remaining privately held member of the Detroit Three.
The filing by GM is the largest by an industrial company and one that for 77 of its first 100 years was the largest auto maker in the world.
The company has made several moves in recent days to ease the path through the bankruptcy process. The latest move was to reach a deal with a little more than half its bondholders to swap their debt for the 10-per-cent stake in GM and warrants to purchase another 15 per cent.
That came one day after the United Auto Workers union approved a deal that slashes health care costs, freezes wages and eliminates the right to strike until 2015.
"We will come out of it a much stronger and much healthier company," GM vice-chairman Bob Lutz said last month before the final decision had been made to file for protection. "We will have shed much of the baggage that's basically dragged us down in the past. I think we're going to be a somewhat smaller, much leaner, much more flexible and most importantly, very profitable GM."
But the process to get there has been painful. There will be more pain today when GM reveals which 14 plants it will close. That will eliminate another 21,000 jobs.
The cuts are not likely to affect the company's Canadian operations, which employ about 8,000 people and consist of a car assembly plant in Oshawa, and parts and engine manufacturing plants in St. Catharines. A transmission factory in Windsor is already scheduled to close next year and a pickup truck plant in Oshawa shut last month.
GM has lost $70-billion in the past two years alone. With a report from Karen Howlett