A Primer on the G.M.

Bankruptcy
General Motors followed Chrysler into bankruptcy on Monday in a case that will be one of the largest and most complex in history. Here is a quick look at some basics of the G.M. bankruptcy and how it may affect owners of G.M. vehicles and company stock. The questions were answered by Micheline Maynard, who writes about the auto industry; Ron Lieber, the Your Money columnist; and Tara Siegel Bernard, a personal-finance reporter. Q. Is G.M. going out of business? A. No. G.M. is reorganizing under Chapter 11 of the United States Bankruptcy Code. The law allows companies to sell assets, restructure debt, cancel contracts and close operations that normally would have to continue running. Once the companies secure financing to emerge from bankruptcy, they are reconstituted as new legal entities. Q. How long will this take? A. Senior White House officials say the essence of the case should take 60 to 90 days. General Motors plans to use Section 363 of the bankruptcy code to sell assets, rid itself of liabilities and restructure its debt, creating a new version of G.M. Late Sunday, the bankruptcy court approved the sale of Chrysler assets to Fiat, only a month after its case began. The remaining pieces of Chrysler will remain in bankruptcy for at least several more weeks. Such quick bankruptcies are unusual; most take much longer. Q. Who will make decisions about G.M.s future car and truck models? A. G.M. says it will. But the Obama administration recently announced stricter fuel economy standards, and the president is an advocate for hybrid electric vehicles and small cars. So G.M. may indirectly be guided by government priorities. Q. What happens to G.M. dealers? A. G.M. is able under bankruptcy to cancel franchise agreements with its dealers. It has already announced plans to eliminate 1,100 dealers and may cut more. The company wants those dealers to close within 18 months. Dealers can sue to block the action, but a final decision would be up to the judge. In the meantime, G.M. will continue to provide dealers with vehicles.

GMAC, with support from the government, will provide financing for G.M. customers. It is also providing financing for Chrysler. Q. Whats the biggest difference between the G.M. and Chrysler cases? A. Chrysler had reached an agreement to sell assets to Fiat before its case began. G.M. is trying to restructure on its own, with financing from the Treasury. The Treasury is providing G.M. with $30 billion in debtor-in-possession financing so it can operate while in bankruptcy, in addition to about $20 billion G.M. has already received. It is likely the Treasury will provide more scrutiny and guidance in the G.M. case, since such a large amount of taxpayer money is at stake. Q. What happens to G.M. employees? A. G.M. employees who are not union members do not have any job security. The company can ask a judge for an immediate pay cut for its salaried employees, and can announce job cuts and close offices, just as it can outside bankruptcy, Contracts covering members of the United Automobile Workers union and other unions will remain in force, unless the company asks a judge to void them. But U.A.W. members approved changes last week, and the new G.M. is expected to honor that contract. Q. Are pensions and retiree health care benefits protected? A. The White House said Sunday that, assuming the sale went forward, G.M. workers pensions and health care benefits would transfer to the new company and remain in force. Companies have the right under bankruptcy law to ask to terminate their pension plans. If pensions were terminated, employees would receive reduced benefits through financing from the federal pension agency. A company can also eliminate retiree health care benefits for nonunion employees; they would subsequently be covered by Medicare if they were 65 or older. Q. What happens to G.M. suppliers?

A. The White House said supplier contracts would remain in force, and it has created a program to provide federal help to parts makers. But in bankruptcy, supplier contracts can be canceled. G.M. is likely to tell the court which suppliers it wants to keep doing business with and which contracts it wants to reject. Suppliers can challenge the rejection of their contract, but most likely they will have to reach a settlement with G.M. Q. Will the warranty for G.M. vehicles be honored? A. Yes. The Treasury Department has already said it will stand behind warranties for cars purchased during the restructuring period for both G.M. and Chrysler. And G.M. itself saidthat it would honor existing warranties. If you own, say, a Saturn and the company ultimately does away with the brand, other G.M. dealers will perform the repairs. Q. Are any current stockholders shares worthless? What options exist for stockholders? A. Sell, if you possibly can. The shares will no longer trade on the New York Stock Exchange beginning on Tuesday. But the stock is likely to trade, in a limited fashion, on the Pink Sheets, an electronic quotation system for companies that do not meet the listing standards for the stock exchanges. Most shareholders are typically wiped out in bankruptcy, financial planners said, which is why G.M. stockholders should probably dump their shares if they can. Warren F. McIntyre, a financial planner in Troy, Mich., said that many people dont realize that usually a new share class is issued and the holders of the old shares are wiped out. But getting rid of the stock may be difficult, and if you have too few shares, the brokerage commission alone may wipe out any proceeds from the sale. If you have the actual stock certificates, you might try to sell them on eBay. You may be able to get more for them as collectors items. Its worth a shot. Q. What is a G.M. car worth?

A. The value of G.M. cars will probably fall faster than it would have absent bankruptcy. How much further the value falls will depend on the model, the year, economic conditions in the future and how the company handles itself in bankruptcy. Q. What will happen to the Hummer brand, servicing for owners and buying out a leased Hummer? A. Theres some good news here. It appears that G.M. will be able to sell the Hummer brand and all of its dealers to another company. If this happens, the new company will aim for a seamless transition. It probably wont be seamless, but it most likely will beat the alternative, which is G.M.s dropping the brand altogether. Q. Is G.M. still going to honor recall notices? A. Theyd be crazy not to, but we cant confirm this yet. Heres what Kelly Cusinato, a G.M. spokeswoman, said in an e-mail message: We understand that customers have many questions. As you know though, there are certain things we cannot answer until the judge makes rulings. Keep an eye on http://gm.com/restructuring for more information as it becomes available. Or call (866) 405-4005, though so far the people answering the phones there seem to be mostly reading off scripts or from the Web site. Q. Why would anyone buy a G.M. product during bankruptcy? A. Some of the cars are going to be real bargains. A dealer being forced to close will want to get rid of inventory quickly. Or, if you visit a dealer with nearby Japanese or German competition, that dealer needs to move the metal. Anyone worried about disappearing dealers and parts shortages could hedge a bit by buying one of the few G.M. cars with above-average reliability ratings. This article has been revised to reflect the following correction: Correction: June 5, 2009 An article on Tuesday about the practical implications of the bankruptcy filing by General Motors described incorrectly the size of payments to retirees should the automaker

terminate its pension plans. While many retirees would receive lower benefits from the federal Pension Benefit Guaranty Corporation than they were expecting from G.M., the payments would depend in part on their age at retirement and would not necessarily be about a third of their expected benefits. The error also appeared in a similar article on May 1 about the implications of Chryslers bankruptcy filing.