For Sale, Cheap: 'Old GM' Peddles an Empire's Remains
Two floors below, Al Koch and several dozen professional bankruptcy administrators are trying to dispose of GM's past. They are seeking buyers for shuttered car plants saddled with outdated equipment and former GM sites tainted by toxic waste.
Experts have marveled at GM's rapid 40-day trip through bankruptcy court this summer, under which the best parts and brands were sold to the surviving company. But GM abandoned its worst pieces in Chapter 11 purgatory.
Left behind are the remnants of a grand industrial empire: 200 properties, 5,000 assembly-line robots, 200 miles of conveyor belts and even a golf complex.
In all, an entity some call "Old GM" but formally known as Motors Liquidation Co. owns about 50 million square feet of unwanted factory and office space -- roughly the equivalent of 25 Empire State Buildings. It could take years to shed all these properties, initially valued by Motors Liquidation in court papers at $2.3 billion but which the company now believes are worth far less.
GM's past reared its head again this week when former race-car driver Roger Penske dropped a bid to buy the Saturn brand, which GM agreed to unload as part of its restructuring. GM now plans to shutter Saturn. Motors Liquidation isn't involved beyond owning stakes in a small number of Saturn dealerships that refused to accept closure agreements from GM as the car maker pared its dealer network. Those dealers weren't set to be part of Mr. Penske's deal.
The salvage operation spearheaded by Mr. Koch is one of the most ambitious efforts to result from the U.S. government's commandeering of the American auto industry. Splitting GM into "good" and "bad" components was prescribed by the Obama administration's auto task force earlier this year. The panel ushered GM and Chrysler into bankruptcy proceedings and agreed to help fund their turnaround attempts. GM received $50 billion in U.S. loans, while Chrysler, now called Chrysler Group LLC, got about $9 billion. (Ford Motor Co. has managed through the recession without government aid.)
Motors Liquidation amounts to a virtual company without a home. About 50 of its employees work in space rented from GM at its glass-walled headquarters tower overlooking the Detroit River.
On the 38th floor, managers of "New GM" pass scale models of the auto maker's historic cars as they ascend a floating stairway to the expansive executive suite. On the 37th floor, Motors Liquidation executives work on laptops in converted conference rooms, surrounded by tangles of wires, empty soda bottles and FedEx boxes strewn across the tables and floor. Mr. Koch, chief executive of Motors Liquidation and vice chairman of AlixPartners LLP, the restructuring firm overseeing the bankruptcy estate, works at a small round table in a room lacking a desk or bookshelves.
Motors Liquidation also rents space at GM's technical center in Warren, Mich., and pays GM for accounting, technology and office supplies. GM, in turn, leases some of its old plants from Motors Liquidation until the car maker no longer needs them.
This odd relationship between the survivor and the liquidator can create complications. GM recently asked Motors Liquidation to take over, 90 days earlier than planned, the security, taxes, electricity and other costs at three closed plants, according to people familiar with the matter. Motors Liquidation agreed to take on the additional $1.4 million expense at the plants in Pittsburgh, Moraine, Ohio, and Massena, N.Y. -- but in exchange it now wants GM to lower the rent on its leased office space, these people said.
A GM spokesman said the two sides "continue to work through a variety of issues" related to the liquidation of GM's unwanted assets but declined to comment further.
The plight of GM's discarded past was on display during an unseasonably humid September afternoon in Pontiac, Mich. Motors Liquidation executives took a team of potential buyers on a tour of Pontiac Assembly, a sprawling factory that builds Chevrolet Silverado and GMC Sierra pickup trucks. The plant, dating to 1972, was weeks away from closing.
One of the potential buyers, John Rakolta Jr., the 62-year-old chairman of Detroit construction firm Walbridge, laid out the challenges to reusing Pontiac Assembly as a vehicle factory. As hot sparks flew from a nearby welding shop, Mr. Rakolta, in a crisp white dress shirt and tight tie, interrupted plant officials with questions.
"How many man hours to assemble a truck here?" he asked as vehicle frames moved down the line. (Thirty-five). "How many operation levels here?" he asked in the paint shop. (Four).
Mr. Rakolta, whose firm has built car factories, pointed out the plant's outdated features. The yellow sodium-vapor lamps overhead consume too much energy, he said. Moveover, the plant is laid out for a now-discredited production system in which vehicle parts are stored in containers hanging from the ceiling. Modern car factories use just-in-time delivery, in which parts are delivered as needed at entrances that abut the assembly line.
And the GM factory -- nearly the size of the Pentagon at 3.4 million square feet -- is simply too large for many manufacturing concerns, even most car makers.
"This kind of philosophy is the difference between a plant of the 1970s and a plant of 2010," Mr. Rakolta said.
Yet for all its flaws, Mr. Rakolta sees opportunity in Pontiac Assembly. The main reason: It is dirt cheap. Building a similar factory from scratch could cost some $340 million, but Mr. Rakolta's investment team thinks it can get it for one-fifth that amount, or roughly $20 a square foot.
Mr. Rakolta's group includes local boosters who want to help revive Michigan's downtrodden economy. They include Alfred Taubman, an
85-year-old real-estate developer and philanthropist, and Linden Nelson, 49, the head of private investment firm Nelson Ventures. Their goal is to purchase some of GM's unwanted properties and lease them out for new uses.Companies potentially interested in using part of the Pontiac plant include Tesla Motors Inc., a Silicon Valley startup that builds electric cars; and Hummer, the sport-utility vehicle maker GM plans to sell to China's Sichuan Tengzhong Heavy Industrial Machinery Co., according to people familiar with the matter.
Hummer is "looking at all options" for future manufacturing, a spokesman said, including existing facilities and contract manufacturing. Tesla declined to comment.
In Pontiac, Motors Liquidation has had one early success: It sold the former office complex of GM's truck operations to Mr. Rakolta's group, which plans to use the space for a movie studio. Other partners include Raleigh Studios and William Morris Endeavor, the talent agency run by Ari Emanuel, brother of the White House chief of staff.
Whatever Motors Liquidation obtains for GM's detritus will help it repay a $1.175 billion loan from the Treasury Department, a finite budget set aside for disposing of GM's remnants. Motors Liquidation doesn't believe it will be able to repay the loan in full since it isn't optimistic it will get anywhere near the $2.3 billion estimated value of the properties. None of the assets inspire deals where "we think we are going to hit a homer," said Mr. Koch. "We're just hoping to hit some singles."
Motors Liquidation creditors, which include GM suppliers and banks, have a keen interest in what Mr. Koch can extract, and how much he spends in doing so. Motors Liquidation holds a 10% stake in the new GM. But if Motors Liquidation goes over budget, it may have to use proceeds from selling some of the GM stake to make up the shortfall and so creditors wouldn't end up with as much.
The creditors "have a dog in the liquidation fight in this respect: They have no upside, but they have a downside," Mr. Koch said.
Mr. Koch has said selling GM's unwanted assets in the midst of a recession could take at least two years. That means Motors Liquidation could still be seeking buyers when the new GM tries for an initial public stock offering sometime next year, a step the company is expected to take under its reorganization to help repay the U.S. loans it received.
"It's a herculean task to sort all that out," said David Resnick, co-head of investment banking at Rothschild Inc., which isn't connected to the GM liquidation. He estimated it could take four years to dispose of Old GM's estate.
For Mr. Koch and others, each day is a never-ending list of conference calls, plant tours and meetings, sometimes spent haggling over cleanup costs for polluted factories and surrounding properties. In recent court testimony, Mr. Koch pegged the cost of eliminating environmental problems at all of Old GM's sites at $530 million.
In Massena, N.Y., a closed GM engine plant bordering an Indian reservation and the St. Lawrence River has stirred controversy over the cleanup of spills of the industrial contaminant PCBs. John Privitera, a lawyer for the St. Regis Mohawk Tribe, said the plant's industrial sludge has been seeping into neighboring waters since the 1950s.
An Environmental Protection Agency spokesman said previous remediation efforts have kept "human exposure under control" and "are protective of human health and the environment in the short term." But until the cleanup is finished, the site "has the potential to be a public health hazard," the spokesman said. He added that the remaining cleanup should cost around $130 million.
Motors Liquidation said in a statement that its objective "is to work with local communities, developers and other stakeholders to resolve environmental-remediation obligations at the properties now under our control" and that it believes it has set aside sufficient funds to do so.
And for nearly every plant or office building on the block, Motors Liquidation officials must make a political calculation. Most of the plants have been part of communities for decades, making their fate the subject of keen interest from elected officials. So far, though, lobbying efforts appear to have had little impact.
Motors Liquidation recently told Toyota Motor Corp. it wouldn't pump any more money into a GM-Toyota joint-venture plant south of San Francisco called New United Motor Manufacturing Inc., or NUMMI. The
5.3-million-square-foot car factory employs more than 4,500 unionized workers. GM left its 50% stake in the venture in bankruptcy. Toyota recently decided to cancel its investment and shut the factory despite pleas from Gov. Arnold Schwarzenegger and U.S. Sen. Dianne Feinstein (D., Calif.), among others.Governors and congressional delegations also failed to persuade GM to keep open a stamping plant in Mansfield, Ohio, and an assembly plant in Wilmington, Del., leaving Motors Liquidation to dispose of the properties.
"We're looking from some flexibility and some time," said Gov. Jack Markell of Delaware, where the last Saturn Sky and Pontiac Solstice roadsters rolled off the line of the Wilmington plant in July. Mr. Markell wants Motors Liquidation to keep some equipment in the plant to market it to other manufacturers. Motors Liquidation has agreed informally to the request.
So vast is GM's discarded empire it includes assets unrelated to making cars. In Clark, N.J., officials at the Hyatt Hills Golf Complex wonder about their operation's fate.
GM spent several million dollars to redevelop a former factory site into the sprawling golf operation, which includes a driving range, nine-hole course and 18-hole miniature-golf course. The complex, which opened in
2002, brings in about $1.6 million in annual revenue, said Robert Hoeffler, the complex's executive director, and most of its profit goes to local governments.Mr. Hoeffler said he has had no contact with the old or new GM about the property's future. "We haven't heard a word from anybody," he said. "It's up to them to tell us what they're doing. They made the move, not us. We're just out here operating."