General Motors 2011 Annual Report Download - page 191

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Refer to Note 18 for additional information on the common stock contributed to our pension plans and warrants, common stock,
notes and preferred stock issued to settle certain hourly retirees healthcare benefit obligations.
Note 32. Chapter 11 Proceedings and the 363 Sale
Background
Over time as Old GM’s market share declined in North America, Old GM needed to continually restructure its business operations
to reduce cost and excess capacity. Legacy labor costs and obligations and capacity in its dealer network made Old GM less
competitive than new entrants into the U.S. market. These factors continued to strain Old GM’s liquidity. In 2005 Old GM incurred
significant losses from operations and from restructuring activities such as providing support to Delphi and other efforts intended to
reduce operating costs. Old GM managed its liquidity during this time through a series of cost reduction initiatives, capital markets
transactions and sales of assets. However, the global credit market crisis had a dramatic effect on Old GM and the automotive
industry. In the second half of 2008, the increased turmoil in the mortgage and overall credit markets (particularly the lack of
financing for buyers or lessees of vehicles), the continued reductions in U.S. housing values, the volatility in the price of oil,
recessions in the U.S. and Western Europe and the slowdown of economic growth in the rest of the world created a substantially more
difficult business environment. The ability to execute capital markets transactions or sales of assets was extremely limited, vehicle
sales in North America and Western Europe contracted severely and the pace of vehicle sales in the rest of the world slowed. Old
GM’s liquidity position, as well as its operating performance, were negatively affected by these economic and industry conditions and
by other financial and business factors, many of which were beyond its control.
As a result of these economic conditions and the rapid decline in sales in the three months ended December 31, 2008 Old GM
determined that, despite the actions it had then taken to restructure its U.S. business, it would be unable to pay its obligations in the
normal course of business in 2009 or service its debt in a timely fashion, which required the development of a new plan that depended
on financial assistance from the U.S. government.
In December 2008 Old GM requested and received financial assistance from the U.S. government and entered into the UST Loan
Agreement. In early 2009 Old GM’s business results and liquidity continued to deteriorate, and, as a result, Old GM obtained
additional funding from the UST under the UST Loan Agreement. Old GM also received funding from EDC under the EDC Loan
Facility.
As a condition to obtaining the loans under the UST Loan Agreement, Old GM was required to submit a plan in February 2009 that
included specific actions (Viability Plan) intended to result in the following:
• Repayment of all loans, interest and expenses under the UST Loan Agreement, and all other funding provided by the U.S.
government;
• Compliance with federal fuel efficiency and emissions requirements and commencement of domestic manufacturing of
advanced technology vehicles;
• Achievement of a positive net present value, using reasonable assumptions and taking into account all existing and projected
future costs;
• Rationalization of costs, capitalization and capacity with respect to its manufacturing workforce, suppliers and dealerships;
and
• A product mix and cost structure that is competitive in the U.S. marketplace.
The UST Loan Agreement also required Old GM to, among other things, use its best efforts to achieve the following restructuring
targets: (1) debt reduction of at least two-thirds; (2) labor modifications to achieve an average compensation competitive with that of
foreign-owned U.S. domiciled automakers; and, (3) modification of certain retiree healthcare obligations.
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