GM filing alters the landscape

"We are acting as reluctant shareholders, because that is the only way to help GM succeed," Obama said during a news conference in Washington. "What we are not doing - what I have no interest in doing - is running GM."

With the automaker's nearly $173 billion in debt and $82 billion in assets, the bankruptcy filing is the largest ever by an industrial firm, and the fourth-largest overall in US history. For months, GM has been under intense pressure from the Obama administration to come up with a survival plan, and while the filing in New York was expected, it marked a low point for a century-old corporation that until last year was the world's largest automaker.

Last month, the company said it wanted to drop about 2,300 of its nearly 6,000 franchises nationwide by the end of next year. In Massachusetts, that could include about 40 of 98 GM dealerships. Also, a parts distribution center in Norton with about 70 employees is expected to close.

Many of the state's GM dealerships have been in business for decades and are highly recognizable in their communities. They are often run by generations of families and sponsor local sports teams and other organizations. While a list of affected GM dealers in Massachusetts has not been released, local auto industry officials estimate dozens are likely to be shuttered.

"Based on the numbers that they've thrown around before, you could potentially be looking at 40" said Robert O'Koniewski, a spokesman for the Massachusetts State Automobile Dealers Association.

"On average, a dealership has 50 employees," he said. "So for any dealership that closes, your potential hit is 50 employees."

Under the reorganization plan, which must be approved in Bankruptcy Court, the federal government will own nearly 61 percent of GM and commit $30 billion to it, on top of $20 billion of taxpayers' money already invested. The Canadian national and Ontario governments will control 11.7 percent of the automaker, with the United Auto Workers union holding a 17.5 percent share and unsecured bondholders receiving 10 percent.

Hours after the filing, bankruptcy Judge Robert Gerber noted the urgency of the proceeding and ruled GM can have immediate access to $15 billion in government financing.

The company said bankruptcy will not affect warranty coverage, customer support, or service, and the production of new autos will go on as scheduled. Also, GMAC Financial Services said it will continue to provide loan financing to dealers and customers.

"The GM that many of you knew and that let many of you down is history," chief executive Fritz Henderson said during a press conference in New York. "We know we need to prove ourselves - and do it every day. And we will."

While acknowledging that government ownership of GM is likely to "give some Americans pause," Obama said the "iconic" company cannot be allowed to fail.

"Understand we're making these investments not because I want to spend the American people's tax dollars, but because I want to protect them," he said.

GM said it hopes to emerge from the bankruptcy process within 60 to 90 days. Yesterday, its stock closed at 75 cents, unchanged from Friday, and down from $4.93 in early December.

A leaner company would have 64,000 US employees by the end of the year - down from 91,000 in 2008 - and include only the Buick, Cadillac, Chevrolet, and GMC brands. GM plans to scrap Pontiac altogether and sell off its Hummer, Saab, and Saturn units.

The company also will close 14 US manufacturing plants, and three service, parts, and operations warehouses, including the one in Norton.

One of the Massachusetts franchises targeted for closing by the end of 2010 is Berkshire GMC Inc. in Sheffield, a small dealership that has half a dozen employees and sells about 75 new cars a year, according to owner Brian Palmer. His father opened the business in 1977, and Palmer said it is the "last new car dealer in town."

Palmer said GM's bankruptcy filing has him questioning whether the company really plans to honor franchise contracts like his through next year.

"I have a strong suspicion that [bankruptcy] may change the game," he said.

Henderson, GM's chief executive, said there are no plans to close dealerships earlier than scheduled.

The company originally hoped to avoid filing for bankruptcy as it faced a government-imposed June 1 deadline to restructure, slash costs, and modify contracts with dealers and the UAW. But meeting most of those demands, plus a late agreement by many bondholders to swap $27 billion in debt they are owed for shares in a new GM, were not enough to prevent the court filing.

It would have been difficult for GM to downsize and reinvent itself as quickly as it needs to without filing for Chapter 11, said Rick Mikels, a bankruptcy attorney with Mintz Levin in Boston. Under Chapter 11 protection, GM can continue to do business while reorganizing its operations, selling off assets, and shedding debt.

"GM has an infrastructure that is designed to produce and sell 50 percent of the cars in the world, and the problem is that to go down to 10, 15, 18 percent [of the market] your cost structure is totally out of whack," Mikels said.

In addition to dealerships, other businesses in Massachusetts will be affected by the bankruptcy.

For instance, FMR Corp., parent company of Fidelity Investments, which helps manage GM's retirement funds and other benefits, is among the major creditors listed in the automaker's bankruptcy filings. FMR is owed nearly $12 million, court documents show. A Fidelity spokesman declined to comment.

Two other companies with Massachusetts ties are also GM creditors: Publicis Groupe S.A., the French parent company for Boston-based Digitas, which does advertising work for GM, is owed nearly $25.3 million; and Interpublic Group of Cos. Inc. in New York, is owed almost $16 million. Interpublic is the parent for Mullen, an advertising agency based in Boston.

Digitas could not be reached for comment, and a Mullen spokesman declined to comment.

Despite Obama's optimism that GM would come out of bankruptcy in better condition, some academics who follow the auto industry questioned how successful the restructuring will be - especially given the embattled company's past efforts to remake itself without real success.

Barry Bluestone, dean of Northeastern University's School of Social Science, Urban Affairs and Public Policy, said GM's long history of dominance led to "a kind of arrogance" that made it slow to react to shifts in the industry.

"GM never really recognized the level of competition they were facing, nor learned from their competitors," Bluestone said. To reinvent itself, Bluestone said, "You need a General Motors whose top management really takes into account the attitudes of consumers toward quality and innovation, and the changing nature of the economic and social environment surrounding the automobile. If we don't take time to change the culture, I don't see that this company is saved."

Erin Ailworth can be reached at eailworth@globe.com.