WISCONSINREPORT.COM (06/02/2009) - One of the icons of the automobile industry and of corporate America in general, General Motors (GM) yesterday entered into bankruptcy. It's part of the overall plan to save the company from leaving the stage entirely. GM entered chapter 11 to launch the New GM through the powerful tools of the Bankruptcy Code. GM has followed Chrysler LLC in filing for reorganization under the bankruptcy codes. Chrysler filed last month. Both companies are hoping to be leaner, focused and more competitive as a result of their actions.

GM has the support of the U.S. and Canadian governments and the UAW in this effort.

WHAT ARE SOME KEY ATTRIBUTES OF CHAPTER 11?

Some key Chapter 11 attributes are the following:

- Chapter 11 is not a declaration of insolvency.

- Companies don’t file chapter 11 to liquidate; they do so in order to continue operating and to take the necessary steps to emerge as a financially stronger business, reorganizing their operations or balance sheet or in some cases by selling substantially all its assets.

- Management remains in control of the business during the chapter 11 rehabilitative process. Trustees, administrators and monitors typically are not appointed.

- Chapter 11 normally does not cause interruption to business operations.

- The company is given breathing room during the process - an “automatic stay” generally prevents parties from taking legal action against the company or taking the company’s assets.

WHAT IS SECTION 363 AND HOW IS IT BEING USED TO LAUNCH THE NEW GM?

Section 363 permits a company in chapter 11 to sell assets and in some cases substantially all its assets. GM intends to use that ability to sell the strongest parts of its business to launch a new and successful enterprise.

The New GM will be built upon only the strongest parts of GM: GM employees; GM best brands (Cadillac, Chevrolet, Buick, GMC), and the plants and other hard assets that those brands rely on; the contracts needed to secure supplies and keep the business moving; and the equity in GM domestic and global subsidiaries.

The New GM will be led by GM’s current management team. With the support of GM's largest secured lender, the U.S. Treasury, section 363 allows GM through a court-supervised sale, to create and launch the New GM quickly. GM hopes to close the transaction in 60 to 90 days from June 1.

HOW IS THE NEW GM BEING LAUNCHED?

It is anticipated that the valuable assets of GM will be sold to a new entity to quickly launch a leaner, more customer-focused and more cost-competitive automaker, with a much stronger balance sheet that is positioned for profitability. The New GM will be built from GM’s strongest brands and operations.

WILL THE CHAPTER 11 BE COMPLETELY OVER AFTER NEW GM EXISTS?

An important advantage of the 363 process is that it allows the New GM to quickly make a clean and complete break from chapter 11. When the New GM launches, the chapter 11 case will be over for all of the operations that GM customers interact with.

For GM’s operations that will not become part of the New GM, the chapter 11 case will continue in order to resolve creditors’ claims and wind down those operations in an orderly way.

CHRYSLER ALSO IN PROCESS OF RETOOLING COMPANY

Chrysler LLC announced that it has begun the process of assuming and assigning the overwhelming majority of the company’s supplier contracts to the new company
established in a global alliance with Fiat SpA once the sale is complete.

As part of these efforts, Chrysler has been mailing letters to approximately 1,200 of its suppliers setting forth the amounts that Chrysler has determined will be required to "cure" all contracts to be assumed and assigned. These letters also provide details of the process by which suppliers can begin receiving payment of such amounts.

Completing this process quickly is an important step in Chrysler’s preparations to restart operations, and provides suppliers with a fast and efficient way to ensure payment of pre-petition claims and to continue their business relationship with the new company moving forward.

“This is very good news for suppliers and Chrysler,” said Scott Garberding, Senior Vice President and Chief Procurement Officer of Chrysler LLC.

"I know there was great anxiety in the supplier community when we announced Chrysler’s Chapter 11 filing. This should be a great relief. The terms are fair and far better than the treatment trade creditors usually get in a bankruptcy case, and provide a mechanism for quick resolution of all open issues," Garberding said.

An initial list of suppliers being asked to go forward with the new company is included in court documents filed May 15, 2009 in the U.S. Bankruptcy Court for the Southern District of New York. The list is not a complete or final listing of suppliers for the new company, and Chrysler will continue to work with those suppliers who wish to become part of the new enterprise.

“Our supplier partners will be critical to the success of the new Chrysler that emerges from Chapter 11,” added Garberding. “We are asking our suppliers to move quickly to become part of the vibrant new company that will emerge from the Chrysler–Fiat alliance.”