General Motors files for bankruptcy protection

GENERAL MOTORS FILED FOR CHAPTER 11 BANKRUPTCY PROTECTION

Monday as part of the Obama administration's plan to shrink the automaker to a sustainable size and give a majority ownership stake to the federal government.

GM's bankruptcy filing is the fourth-largest in U.S. history and the largest for an industrial company. The company said it has $172.81 billion in debt and $82.29 billion in assets.

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"The General Motors board of directors authorized the filing of a Chapter 11 case with regret that this path proved necessary despite the best efforts of so many," GM Chairman Kent Kresa said in a written statement. "Today marks a new beginning for General Motors. ... The board is confident that this New GM can operate successfully in the intensely competitive U.S. market and around the world."

As it reorganizes, the fallen icon of American industry will rely on $30 billion of additional financial assistance from the Treasury Department and $9.5 billion from Canada. That's on top of about $20 billion in taxpayer money GM already has received in the form of low-interest loans.

The Detroit automaker said warranty coverage, service and customer support will continue uninterrupted, and employees and essential suppliers will continue to be paid. GMAC Financial Services said in a statement that it will continues to provide automotive financing to GM and Chrysler dealers and customers.

GM will follow a similar course taken by smaller rival Chrysler LLC, which filed for Chapter 11 protection in April. A judge gave Chrysler approval to sell most of its assets to Italy's Fiat, moving the U.S. automaker closer to a quick exit from court protection, possibly this week.

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The plan is for the federal government to take a 60 percent ownership stake in the new GM. The Canadian government would take 12.5 percent, with the United Auto Workers getting a 17.5 percent share and unsecured bondholders receiving 10 percent. Existing GM shareholders are expected to be wiped out.

President Barack Obama is scheduled to address the nation about GM's future at midday from Washington, and GM CEO Fritz Henderson is to follow him with a news conference in New York.

Administration officials, speaking on condition of anonymity in advance of Obama's remarks, said they expect the bankruptcy court process to last 60 to 90 days. If successful, GM will emerge as a leaner company with a smaller work force, fewer plants and a trimmed dealership network.

GM revealed Monday that it will permanently close nine more plants and idle three others.

The Pontiac, Mich., and Wilmington, Del., assembly plants will close this year, while plants in Spring Hill, Tenn., and Orion, Mich., will shut down production but remain on standby. One of the idled plants will be retooled to build a small car that GM had originally planned to build in China.

Seven powertrain and parts stamping plants will be closed starting in June 2010, while an additional stamping plant will be idled but remain in a standby capacity.

GM's filing comes 32 days after a Chapter 11 filing by Chrysler, which also was hobbled by plunging sales of cars and trucks as the worst recession since the Great Depression intensified.

The sale to Fiat means Chrysler could be out of bankruptcy within the government's original timeframe of 30 to 60 days. Chrysler's plan gives a 55 percent stake of the new company to a union-run trust for retirees. Fiat gets a 20 percent stake to Fiat that can ultimately grow to 35 percent. The U.S. and Canadian governments get smaller pieces.

The third of the one-time Big Three, Ford Motor Co., has also been stung hard by the sales slump, but it avoided bankruptcy by mortgaging all of its assets in 2006 to borrow roughly $25 billion, giving it a financial cushion GM and Chrysler lacked.

GM will move forward with four core brands — Chevrolet, Cadillac, Buick and GMC — and cut four others. The company plans to cut 21,000 employees, about 34 percent of its work force, and reduce the number of dealers by 2,600. GM said it was finalizing a deal to sell Hummer, and plans for Saturn are expected to be announced within weeks.

"There is still plenty of pain to go around, but I'm confident this is far better than the alternative," said Sen. Carl Levin, D-Mich. "It's a new beginning, it's a rebirth, it's a new General Motors."

GM shares fell as low as 27 cents in Monday morning trading, their lowest price in the company's 100-year history, but rebounded to rise 11 cents from Friday's close to 86 cents in midday trading. The News Corp. unit that oversees the Dow Jones industrial average said GM will be kicked out of the index on June 8 and be replaced by Cisco Systems Inc. The index's rules prohibit it from including companies that have filed for bankruptcy.

The bankruptcy filing represents a dramatic downfall for GM, which was founded in 1908 by William C. Durant, who brought several car companies under one roof and developed a strategy of "a car for every purse and purpose." Longtime leader Alfred P. Sloan built the global automaker into a corporate icon.

GM first sought help from the Bush administration and Congress last year as it was in the midst of being staggered by $30.9 billion in losses and seeing its cash resources shrink by more than $19 billion.

Consumers, worried about the economy and the future of GM, shied away from the company's cars and trucks this year even after President George W. Bush promised loans and Obama followed through with billions more in assistance — plus a stiff set of new requirements GM was ordered to meet.

When GM failed to do so by a March 31 deadline, Obama forced out CEO Rick Wagoner and replaced him with Henderson.

Wagoner served at the helm since 2000 and was the face of GM when he first flew on a company jet to ask Congress for aid. After a firestorm of negative publicity, Wagoner rode in a hybrid Chevrolet Malibu from Detroit to Washington for a second set of withering questions before lawmakers.

But that amounted to only a sideshow as the automaker's financial position worsened. Its revenues plunged almost 50 percent in the quarter ended March 30 and it racked up another $6 billion in losses.

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

Some bondholders might still fight GM's reorganization plan, but the company and Treasury hope the 54 percent who supported the debt-for-equity offer will convince the judge that its a fair deal.

"There is no other sale, or other potential purchasers, present or on the horizon," Henderson said in an affidavit filed Monday in bankruptcy court. "The only other alternative is the liquidation of the debtors' assets that would substantially diminish the value of GM's business and assets, (and) throw hundreds of thousands of persons out of work and cause the termination of health benefits and jeopardize retirement benefits for current and former employees and their families."

It was an all-out sprint to Monday's filing, as GM quickly sought to nail down deals with its union, bondholders and sell off brands and along with most of its Opel operations in Europe in an effort to appear in court with a near-complete plan to quickly emerge as a leaner company with a chance to become profitable.

The German government on Sunday agreed to lend GM's Opel unit $2.1 billion, a move necessary for Magna International Inc. to acquire the company. The Canadian auto parts supplier will take a 20 percent stake in Opel and Russian-owned Sberbank will take a 35 percent, giving the two businesses a majority. GM retains 35 percent of Opel, with the remaining 10 percent going to employees.

In the U.S., the UAW's ratification of concessions, announced Friday, will save GM $1.3 billion per year. The new deal freezes wages, ends bonuses and eliminates some noncompetitive work rules.

It also moves billions in retiree health care costs off GM's books. In exchange for its ownership stake, $6.5 billion of interest-bearing preferred shares, and a $2.5 billion note, the trust will take on responsibility for all health care costs for retirees starting next year. Higher health care costs alone accounted for a $1,500-per-car cost gap between GM and Japanese vehicles.

GM will offer buyouts and early retirement packages to all of its 61,000 hourly workers as it plans to shrink overall employment. The company also has about 27,000 white collar employees. In contrast, GM employed 618,000 Americans in 1979, more than any other company.

GM earlier outlined a plan to cut about 1,100, or 40 percent, of its dealers by the end of 2010. It also plans to shed about 500 dealerships that market the Saturn, Hummer and Saab brands.

A person familiar with GM's plans said the automaker has no plans to accelerate the dealership cuts that were already announced. The person declined to be named because these details have not been made public.

The person said dealerships that the company is planning to terminate began recieving wind-down agreements Monday.

But just cutting labor and overhead costs won't be enough to save the company. It also has been working to streamline its engineering and design, as well as standardize many parts so they can go into multiple models.

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The once powerful GM earns a place in history as the largest U.S. industrial company to file for bankruptcy protection, and the fourth-largest company overall to do so based on its $82.29 billion in assets as of March 31.

Lehman Brothers Holdings Inc.'s Sept. 15 bankruptcy filing is the nation's largest with $691.1 billion in assets, and likely served as a catalyst for GM — and Chrysler's — downfall, as it hastened the erosion of credit markets, making it more difficult for consumers and dealers to finance new vehicles.

Washington Mutual Inc.'s bankruptcy filing 11 days later ranked second with $327.9 billion in assets, according to BankruptcyData.com. That's followed by WorldCom Inc.'s 2002 filing, which listed $103.9 billion in assets.

CHRYSLER's BANKRUPTCY filing now ranks seventh with $39.3 billion in assets.

GENERAL MOTORS TO CLOSE 12 PLANTS as part of GM BANKRUPTCY

General Motors Corp. said Monday it will permanently close nine more plants and idle three others to trim production and labor costs under bankruptcy protection.

Six of the plants are in GM's home state of Michigan, which has already been hard-hit by job cuts in the auto industry.

GM's assembly plant in Wilmington, Del., will close in July, followed by its Pontiac, Mich., pickup truck plant in October.

Assembly plants in Spring Hill, Tenn., and Orion, Mich., will end production this fall but remain on "standby," meaning workers can be called back should the company need to increase production. One of those plants would be retooled to produce a subcompact vehicle that GM had originally planned to build in China.

Todd Horton, editor of the newsletter at the Spring Hill factory's United Auto Workers local, said the 2,500 employees got the news of the shutdown Monday morning. He said the Chevrolet Traverse crossover vehicle built there will be made in Lansing, Mich., instead.

Five GM powertrain plants, which make engines and transmissions, will close by December 2010. They are in Livonia, Flint and Ypsilanti Township, Mich.; Parma, Ohio; and Fredericksburg, Va.

Parts stamping plants in Indianapolis and Mansfield, Ohio, also will close starting next year. A stamping plant in Pontiac, Mich., will shut down production by December 2010 but remain in standby status.

In addition to the closures revealed Monday, a powertrain plant in Massena, N.Y., closed May 1, and GM previously announced the closure of a Grand Rapids, Mich., stamping plant, slated to shut down this month.

GM said it will also close service and parts warehouses in Boston, Jacksonville, Fla., and Columbus, Ohio, by the end of this year.

Delaware Gov. Jack Markell said Troy Clarke, GM's head of North American operations, informed him Sunday night that the Wilmington plant would close. GM has downsized the work force at the plant, which makes the Pontiac Solstice and Saturn Sky, over several years. GM plans to sell off Saturn and phase out its Pontiac line.

"GM has sent many strong signals for the past four years that it was leaning toward closing this plant," said the governor in a statement. "But that does not make this news any less unfortunate or soften its impact on the workers and their families."

Officials will deploy teams of workers from the state departments of labor and health and social services to help workers with training and government assistance, said the governor's spokesman, Joe Rogalsky said.

BANK STRESS TESTS show some banks need more funds

WASHINGTON – Some of the nation's largest banks will be scrambling to demonstrate that they can raise capital after results of government BANK STRESS TEST leaked out, showing many need more funds. The Treasury Department will officially release results later Thursday.

The BANK STRESS TESTS were designed to gauge whether any of the nation's 19 largest banks would need more capital to survive a deeper recession. It turns out many of the banks do: Wells Fargo & Co., Citigroup Inc. and Bank of America Corp. all need billions more, regulators have told them.

The public nature of the assessments and Thursday's planned announcement raised questions among some critics about whether the findings will reflect the banks' actual conditions.

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The BANK STRESS TESTs put banks through two scenarios: one that reflected expectations about the current recession and another that envisioned a recession deeper than what analysts predict.

Citigroup will need to raise about $5 billion, according to a government official briefed on the results who spoke on the condition of anonymity because he was not authorized to discuss the matter. Earlier news reports had put that dollar figure closer to $10 billion.

Regions Financial Corp. will also need to raise more money, according to people briefed on the results, as will Bank of America and Wells Fargo.

Bank of America stock rose Wednesday after reports that the Charlotte, N.C.-based company would need to collect $34 billion in additional capital. The New York Times and Wall Street Journal reported the figure. The Journal cited unidentified people familiar with the situation, while the Times quoted a bank executive.

According to the BANK STRESS TEST Wells Fargo needs between $13 billion and $15 billion, according to Times and Journal reports Thursday. GMAC, the lending arm of beleaguered automaker General Motors Corp., is said to need $11.5 billion.

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Morgan Stanley is looking at between a $1 billion and $2 billion shortfall, according to the Times.

In all, the BANK STRESS TEST said at least seven of the banks will need a combined $65 billion. The entire group that is deemed to need more capital will require less than $100 billion combined, according to the Times.

Despite being included in the Journal's tally, State Street is not being required to raise more capital after completing its stress test, a person familiar with the matter said Thursday.

BANK STRESS TESTS have long been a part of the bank regulation system. They help regulators decide how to supervise banks and aid banks in deciding how to limit their risk. But those conversations between banks and regulators normally take place behind closed doors.

In recent weeks, the government's unprecedented decision to publicly release BANK STRESS TEST results has fanned speculation, with analysts predicting the findings and investors staking out trading positions.

Critics are concerned that all the attention could make the BANK STRESS TESTs much less effective. They say regulators seem so intent on maintaining public confidence in the banks that the results will have to say the banks are basically healthy.

Officials have said they will not let any of the 19 institutions fold. That makes it almost impossible for them to say anything about a bank that would threaten its survival, since a flight by investors could force the government to step in with additional bailout money — something the Treasury Department hopes to avoid.

"There is a real question as to the legitimacy of these results," said Jason O'Donnell, senior analyst at Boenning & Scattergood Inc.

The BANK STRESS TESTS are a key part of the Obama administration's plan to stabilize the financial industry.

The BANK STRESS TESTs estimated how much value the banks' loans would lose as consumers and businesses faced more trouble repaying loans.

The first BANK STRESS TEST scenario envisioned unemployment reaching 8.8 percent in 2010 and housing prices dropping another 14 percent this year. The second BANK STRESS TEST imagined unemployment rising to 10.3 percent next year and homes losing another 22 percent of their value this year.

But economic assumptions have changed since the BANK STRESS TESTs were designed in February. Unemployment already has surpassed the 8.4 percent the BANK STRESS TEST's first scenario predicts for 2009, which leaves some analysts wondering whether the tests were harsh enough.

The government is asking banks to keep their capital reserve ratios above a certain level so they can continue lending even if the economic picture darkens.

The banks that need more capital will have until June 8 to come up with a plan to raise the additional resources and have the plan approved by their regulators, officials said Wednesday.

Banks will have several options for increasing their capital. Some will be able to close the gap by converting the government's debt into common stock. Others will have six months to attempt to raise money from private investors. If they cannot do it, the government will provide money from its $700 billion financial system bailout.

Representatives for American Express Co., JPMorgan Chase & Co., Bank of New York Mellon Corp., Citigroup and Regions Financial would not comment on the tests.

The remaining STRESS TESTED BANKS are: Goldman Sachs Group Inc., MetLife Inc., PNC Financial Services Group Inc., U.S. Bancorp, SunTrust Banks Inc., Capital One Financial Corp., BB&T Corp., Regions Financial Corp., Fifth Third Bancorp and Keycorp.

Financial stocks surged Wednesday amid reports on the BANK STRESS TESTS . Bank of America gained 17 percent, Citigroup surged 16 percent and Wells Fargo gained 15 percent.

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CHRYSLER on the Brink of BANKRUPTCY

Associated Press - WASHINGTON - Chrysler will file for bankruptcy after talks with a small group of creditors crumbled just a day before a government deadline for the automaker to come up with a restructuring plan, President Barack Obama said Thursday.

The Obama administration said it had long hoped to stave off bankruptcy for the nation's third largest automaker, but it became clear that a holdout group wouldn't budge on proposals to reduce Chrysler's US$6.9 billion in secured debt. Clearing those debts was a needed step for Chrysler to restructure by the Thursday deadline.

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Chrysler will file for Chapter 11 bankruptcy protection in New York, giving Chrysler time to galvanize a partnership with the Italian car maker Fiat Group SpA. The government, which has already poured $4 billion in loans into Chrysler, would provide up to $8 billion more to carry the company through bankruptcy, said senior administration officials speaking on condition of anonymity. The government will also help appoint a new board of directors.

The deals give Chrysler "a new lease on life," President Barack Obama said.

"This is not a sign of weakness," he said. "I have every confidence that Chrysler will emerge from this process stronger and more competitive."

Under bankruptcy, Chrysler would still sell cars and the government would back its auto warranties.

The officials, speaking on condition of anonymity because the terms of the bankruptcy had not yet been released, said there would be no job losses or plant closing due to the Chapter 11. But it will be up to Fiat and Chrysler to decide whether to restructure the steadily shrinking company.

Obama said Chrysler Financial, the arm of the company that makes loans to buyers and to dealers to finance their inventories, will be merged into GMAC Financial Services, once General Motors Corp.'s finance arm. The new GMAC will get government support.

The Treasury Department's auto task force has been racing in the past week to clear the major hurdles that prevented Chrysler from coming up with a viable plan to survive the economic crisis ravaging nation's automakers.

Along with the Fiat deal, the United Auto Workers ratified a cost-cutting pact Wednesday night.

Treasury reached a deal earlier this week with four banks that hold the majority of Chrysler's debt in return for $2 billion in cash.

But the administration said about 40 hedge funds that hold roughly 30 per cent of that debt also needed to sign on for the deal to go through. Those creditors said the proposal was unfair and they were holding out for a better deal.

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Fiat will obtain a 20 per cent stake in Chrysler in return for giving the company access to its fuel-efficient technology,

A person briefed on Wednesday night's events said the Treasury Department and the four banks tried to persuade the hedge funds to take a sweetened deal of $2.25 billion in cash. But in the end, this person said most thought they could recover more if Chrysler went into bankruptcy and some of its assets were sold to satisfy creditors. This person asked not to be identified because details of the negotiations have not been made public.

Fiat will obtain a 20 per cent stake in Chrysler in return for giving the company access to its fuel-efficient technology, a move toward cleaner cars that the Obama administration thinks is critical to Chrysler's future survival. The company has committed to building Fiat cars in Chrysler factories, to be sold as Chryslers.

The bankruptcy will be filed under a section of the law that allows a company to shed bad assets and some liabilities. The administration expects it to last only up to 60 days.

Obama's auto task force in March rejected Chrysler's restructuring plan and gave it 30 days to make another effort, including a tie-up with Fiat. The company has borrowed $4 billion from the federal government and needs billions more to keep operating.

The UAW agreement, which would take effect May 4, meets Treasury requirements for continued loans to Chrysler Corp., and includes commitments from Fiat to manufacture a new small car in one of Chrysler's U.S. facilities and to share key technology with Chrysler.

Meanwhile, the Fiat partnership means Chrysler CEO Robert Nardelli could be out of a job. In an April e-mail to employees, he said that if the deal is completed, Chrysler would be run by a new board appointed by the government and Fiat. The new board, Nardelli wrote, would pick a CEO "with Fiat's concurrence."

Sergio Marchionne, CEO of the Italian automaker, told reporters earlier this month that he could run Chrysler. Obama said Wednesday that Fiat's management "has actually done a good job transforming their industry."

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FREDDIE MAC CFO DAVID KELLERMANN SUICIDE

DAVID KELLERMANN, the chief financial officer of FREDDIE MAC, the giant US mortgage lender and guarantor, was found dead today in an apparent suicide.

DAVID KELLERMANN, 41, apparently was found by his wife in their Virginia home.

Police were called to the KELLERMANNhome at 5am and officers later indicated that DAVID KELLERMANN had committed SUICIDE.

Last month FREDDIE MAC controversially paid 92 staff $100,000 or more in return for staying with the lender while it dug its way out of financial trouble.

DAVID KELLERMANN, the acting chief financial officer of troubled mortgage giant FREDDIE MAC was found dead in his Fairfax County home early this morning after apparently committing suicide, Fairfax police said.

DAVID KELLERMANN, 41, was a longtime FREDDIE MAC executive who joined the firm as an analyst in 1992. Police were called to his stately red brick home in the upscale Hunter Mill Estates subdivision shortly before 5 a.m., police spokesman Eddy Azcarate said. The call was made by someone inside the home, which is on a tree-studded corner lot in the 1700 block of Raleigh Hill Road.

Azcarate said DAVID KELLERMANN's body was found in the basement. There was no immediate information about whether he left a suicide note, or what may have prompted him to take his own life.

DAVID KELLERMANN was named acting chief financial officer of FREDDIE MAC last September, when the federal government seized Freddie Mac and ousted its top executives.

The company, along with sister company Fannie Mae, had made risky mortgage-related investments that were causing billions in losses. The two firms have received nearly $60 billion in government bailout funds.

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FREDDIE MAC has been conducting a public search for a permanent chief financial officer.

Life has changed dramatically for FREDDIE MAC employees in the year since the housing market crashed and the economy entered a major downturn.

Once a high-flying finance company, the company has been transformed into a quasi-government agency, carrying out big parts of the Obama administration's housing recovery plan.

The companies were criticized on Capitol Hill earlier this month after outlining plans to pay $210 million in retention bonuses to 7,600 employees over 18 months. But the federal regulator who oversees the companies, James B. Lockhart, defended the proposed bonuses, saying those currently working at the companies "are an important part of the solution and not the problems of the past."

DAVID KELLERMANN, who lived in the 1700 block of Raleigh Hill Road, graduated from the University of Michigan and did graduate work at George Washington University. He was a volunteer board member of the D.C. Coalition for the Homeless.

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As acting chief financial officer, DAVID KELLERMANN reported directly to the FREDDIE MAC's chief executive, according to a biographical profile posted on the company's Web site. DAVID KELLERMANN was responsible for the FREDDIE MAC's financial controls, financial reporting, tax, capital oversight, and compliance with federal oversight requirements, and also oversaw the company's annual budgeting and financial planning processes.

DAVID KELLERMANN previously served as senior vice president, corporate controller and principal accounting officer for FREDDIE MAC, the profile said.

FREDDIE MAC's government-appointed chief executive, David Moffett, quit last month after squabbling with the regulator about its tight grip on company affairs. DAVID KELLERMANN's temporary replacement is John A. Koskinen, who had been serving as FREDDIE MAC's chairman. No permanent successor has been named.

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David Kellermann was named acting chief financial officer in September 2008. Kellermann is a member of the company's leadership team and reports directly to CEO David M. Moffett.

As acting chief financial officer, Kellermann is responsible for the company's financial controls, financial reporting, tax, capital oversight, and compliance with the requirements of Sarbanes-Oxley. He also oversees the company's annual budgeting and financial planning processes.

Prior to this role, he served as senior vice president, corporate controller and principal accounting officer. In this position, his primary responsibility was to support the business with the production of timely, accurate, and well-controlled GAAP, fair value and segment earnings financial statements and external disclosures.

Before that, Kellermann served as the senior vice president and business area controller. As business area controller, he led the organization responsible for all accounting and finance for Freddie Mac’s lines of business.

Kellermann has been with Freddie Mac for more than 16 years. He began as a financial analyst/auditor in 1992, worked for several years in the company's securities sales and trading unit, and has served in a variety of positions in the company's capital markets division, most recently serving as vice president strategy execution and integration and the Investments and Capital Markets division controller.

He holds a M.S. in Finance from George Washington University and a B.S. in Political Science and Accounting from the University of Michigan. Kellermann is a volunteer board member of the D.C. Coalition for the Homeless.


Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.

Obama Forces GM CEO Rick Wagoner to resign

The Obama administration pledged only to fund GM's operations for the next 60 days while it develops a sweeping restructuring plan, instead of granting GM's request for up to a further US$16-billion in loans.

GM CEO Rick Wagoner, who had presided over the company's rapid decline in the past five years and had run the automaker since 2000, was forced out at the request of the autos panel headed by former investment banker Steve Rattner. A majority of GM's board will also be replaced.

"We are left to look back and say that Wagoner's appointment as both chairman and CEO in 2003 was little more than an act to ensure the dynasty of GM boardroom arrogance and failure continued," said Howard Wheeldon, senior strategist at brokerage BGC Partners.

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Wheeldon said Wagoner's departure had been all but inevitable since the automaker sought government funds and said he was disappointed the authorities had not insisted on an external replacement.

Wagoner protege and GM President and Chief Operating Officer Fritz Henderson was named as new CEO. Wagoner's departure came as the Obama administration came under fire for not blocking bonuses to executives at American International Group Inc.

The senior labor leader of GM's German brand Opel, being spun off with the UK's Vauxhall and seeking investors and government support, said the move was overdue.

In Europe, auto stocks fell on concerns about the broader industry impact of the failure of a major U.S. producer. The DJ Stoxx European autos index fell 6.4% by 1000 GMT, while PSA Peugeot Citroen fell 7.7%.

In France PSA Chairman Thierry Peugeot said in a statement the exceptional difficulties faced by the industry warranted a change in management, but Streiff defended himself saying his policies had equipped the group to weather the storm.

Some analysts viewed the appointment of Philippe Varin as positive.

"It brings somebody in that can look at the problem with fresh eyes. The hope will be that he will have a similar impact here to the impact (Sergio) Marchionne had at Fiat, and indeed Varin had at Corus," said Credit Suisse analyst Stuart Pearson.

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Elsewhere, Russia's Avtovaz bucked the trend, its shares surging after Prime Minister Vladimir Putin pledged 20 billion rubles in aid, while Spain's plan to grant subsidies for green cars won approval from the European Commission.

Chrysler, controlled by Cerberus Capital Management, was given 30 days to complete an alliance with Italy's Fiat or face a cut-off of its government funding that could force its liquidation.

Fiat was not immediately available for comment.

The autos panel rejected a claim by Cerberus that Chrysler could be viable on its own, citing its relatively small size, weak product line-up and declining U.S. market share.

If Chrysler can complete a tie-up with Fiat and cost-saving deals with creditors and its major union, the Treasury would consider investing up to another $6 billion, officials said.

U.S. officials said there had been progress in recent negotiations involving the task force. Fiat had agreed to take less than the 35% stake in Chrysler the two companies had first negotiated, the senior official said.

Meanwhile, Henderson, a key architect of GM's now-rejected turnaround plan, was charged with working with U.S. officials and advisers to develop a more aggressive restructuring.

"We believe our approach to GM is starting with a clean sheet of paper," the senior official said.

GM bondholders, the official said, could have to take less than the US33-cent-on-the-dollar payout they have been offered and should abandon hope of a government guarantee.

The Obama administration had also not ruled out a quick bankruptcy process for either GM or Chrysler, he said.

Wagoner had been outspoken in his opposition to a Chapter 11 reorganization, saying it would drive away consumers and probably lead to GM's liquidation.

GM had asked for more than US$16-billion in new government loans, while Chrysler wanted $5 billion to ride out the weakest market for new cars in almost 30 years.

GM has lost about US$82-billion since 2005 when its problems began to mount in the U.S. market. GM stock has also lost about 95% of its value since Wagoner took over as CEO. Although he inherited many of the company's deeper problems, his critics say he failed to act fast enough to resolve them.

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OBAMA Takes over GENERAL MOTORS - The Bail-out / Buy out

With Barack Obama in the driver’s seat, the U.S. auto industry is set to veer on a new course away from the production of gas guzzlers to smaller, more fuel efficient cars.

Barack Obama, the U.S. president, is demanding General Motors Corp. and Chrysler accelerate their production of “green” vehicles as part of conditions unveiled Monday that the ailing automakers need to meet before they receive billions more in bailout money from U.S. taxpayers.

The requirement is part of his administration’s broader effort to end America’s addiction to foreign oil and improve environmental standards. Industry analysts said Monday that includes an ambitious plan to dramatically reshape the U.S. auto industry and give government an unprecedented role in its future.

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The pit crew installed to help oversee the shake-up includes Steven Rattner, a Wall Street financier who earlier this year was named to lead the administration’s auto task force; Edward Montgomery, who will fight for autoworkers and the communities that have been hard hit by the sector’s slump; and Fritz Henderson, who was named chief executive of General Motors after his boss Rick Wagoner stepped down over the weekend at the government’s request.

At a speech at the White House Monday explaining the latest ultimatums GM and Chrysler face to get more bailout funds – or go bankrupt — Barack Obama said he believes the U.S. auto industry can once more out-compete the world.

Revamping U.S. automakers can lead to “a 21st century auto industry that is creating new jobs, unleashing new prosperity, and manufacturing the fuel-efficient cars and trucks that will carry us toward an energy independent future,” Barack Obama said. “I am absolutely committed to working with Congress and the auto companies to meet one goal: The United States of America will lead the world in building the next generation of clean cars.”

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It is unclear at this stage whether the restructuring of GM and Chrysler can occur without either or both companies winding up in bankruptcy court first.

Worries that GM could be headed in that direction contributed to a stock-market sell-off Monday. The Dow Jones Industrial Average sank more than 254 points to 7,522.02. Ongoing worries about the health of U.S. banks also helped drag stocks down. Shares of GM plunged 25%.

The company’s much smaller rival, Chrysler, which is privately held, was given until the end of April to complete a deal with Fiat SpA.

Barack Obama administration showed it is calling the shots at GM by demanding Mr. Wagoner’s exit.

Industry analysts considered the ouster a symbolic move to appease an angry American public upset over the billions in taxpayer dollars that have gone to bail out GM and Chrysler.

Fritz Henderson, GM’s chief operating officer and Mr. Wagoner’s right-hand man, stepped in as interim CEO.

The administration is giving him 60 days to boost the restructuring efforts or the company will face bankruptcy.

“We believe it’s going to be tough to get that accomplished,” said George Magliano, director of auto industry research at IHS Global Insight. “The government has raised the bar so high. I suspect what’s likely to happen is that current management at General Motors will be eliminated and the government will install people that are favorably disposed to the direction it wants to take General Motors.”

To further its green effort, the Barack Obama administration hopes to persuade U.S. Congress to use some of the U.S. government’s US$787-billion stimulus program to fund tax rebates for consumers who turn in their old, less fuel-efficient cars for more environmentally friendly models.

“Obama is going to restructure GM to be a producer of clean, fuel efficient vehicles and make laws and regulations so that automakers in the American market will have to sell them,” said Mr. Magliano. “It’s a way to get American consumers to drive them that doesn’t require the thing that’s political suicide, which is to raise gas prices.”

Some industry analysts questioned the move to emphasize the production of such vehicles when gas prices are falling and consumers don’t feel like they can afford new cars, particularly the usually pricier green models.

“Buying those kinds of cars is not really what’s on people’s minds right now,” said Jessica Caldwell, an industry analyst with Edmunds.com.

Edmunds’ AutoObserver.com Editor Michelle Krebs, added in a note: “The market for fuel efficient vehicles rises and falls with gas prices. Until there is a consistent and compelling reason for consumers to buy hybrids, such as stabilized gas prices, automakers cannot realistically turn over their product lines to that more expensive, less profitable product that has only achieved 2% market share after all these years in production.”

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SAAB FILING FOR BANKRUPTCY

STOCKHOLM (AP) Saab has filed for bankruptcy protection and intends to split from its troubled parent company, General Motors.

GM had asked Sweden for government help for Saab but had to take 'no' for an answer.

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With no help forthcoming from Sweden's government, Saab has filed for bankruptcy protection. The goal is to split from its parent company, General Motors. GM says its exploring all options.
General Motors' subsidiary has filed for reorganization, a step taken to stave off bankruptcy protection.

General Motors' Swedish subsidiary, Saab, confirmed on Friday that it has filed for reorganization, a step to avoid bankruptcy protection, as the company seeks to pay down pending debt and return to profitability.

"I can confirm that Saab has filed for reorganization. It is not a bankruptcy situation. The aim is to have Saab as a freestanding entity," a spokesman for the firm told Forbes.

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SAAB is seeking funds from both public and private sources but will operate as usual with government funding during the reorganization process.

Under Swedish law, when a company files for reorganization, it means that it is looking for ways to raise capital to pay off debt. One of the solutions a company might consider is seeking a buyer to could acquire an equity stake.

The legal process will be headed by an independent administrator appointed by court as the company seeks funds from both private and public sources, TradeTheNews.com reported. Saab will operate as usual, with the central government providing assistance during the process, which will be executed over a 90-day period.

The Swedish government has categorically denied the possibility of buying equity in its struggling carmakers. "The Swedish state and taxpayers in Sweden will not own car factories," Industry Minister Maud Olofsson said on Wednesday. "Sometimes you get the feeling that [GM] is a small, small company, but it is the world's biggest automaker, so we have a right to make demands."

Saab builds fewer than 1 million vehicles per year, in contrast to Renault or Volkswagen, whose capacity ranges between 2 million and 3 million cars per year.

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Revenue slumped 30% to $1.76 billion for the company, which also supplies newsprint through its North Pacific Paper Corp. joint venture.

Analysts polled by Thomson Reuters projected a loss of 57 cents with revenue of $1.85 billion.

Gross margin dropped to 32% from 39.4% amid the sales woes.

Weyerhaeuser is continuing to shutter facilities as part of a cost-cutting effort that also entails a reduced dividend, wage freezes and halving capital spending this year. The company announced six months ago it would shed nearly 1, 500 job cuts, or 6.3% of its work force as it moves to focus on logging and home building.

Weyerhaeuser shares fell 6 cents premarket to $27.30, and there was no premarket trading. The stock has fallen nearly 55% since September.

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Timber, pulp and wood products company Weyerhaeuser Co. said Thursday it is closing its veneer and lumber mills in Pine Hill, Ala. indefinitely, affecting 300 workers.

Weyerhaeuser (nyse: WY - news - people ), which will report its fourth-quarter results on Friday, said it will provide the mills' employees with transition benefits.

"The demand for residential wood products continues to erode," said Tom Gideon, executive vice president of forest products, in a statement. "Unfortunately, the current extraordinarily weak market conditions require that we take decisive action."

The plant closures are effective immediately, the company said. Weyerhaeuser continues to employ about 350 people in Alabama.

Shares closed earlier down 89 cents, or 3.2 percent, to $27.36.

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span style="font-weight:bold;">CIRCUIT CITY had been seeking a buyer or a deal to refinance its debt, but the credit crunch and consumer cutbacks proved insurmountable. Negotiations extended past midnight Thursday, then fell through, Circuit City lawyer Gregg Galardi said.

Two potential buyers -- Mexican billionaire Ricardo Salinas Pliego, who controls a chain of electronics stores in Latin America and the Golden Gate Capital private equity firm -- considered downsizing to 180 to 350 stores. But span style="font-weight:bold;">CIRCUIT CITY couldn't secure financing or vendor support.

"This is the only possible path for our company," acting Chief Executive James A. Marcum said.

U.S. Bankruptcy Judge Kevin Huennekens approved the liquidation plan Friday afternoon, allowing closeout sales to start today at some stores, including the county store.

"This is bad news for the local economy," said Michael Hutchison, economics professor at UC Santa Cruz. "It will result in a loss of employment, fall in sales tax revenues

and less consumer choice. It's not clear that these sales will stay in the county or go to large discount stores in San Jose. This recession is hitting virtually all sectors of the economy and is getting worse."

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But Lyle Troxell, host of the Geek Speak show on KUSP-FM radio, contended span style="font-weight:bold;">CIRCUIT CITY's demise is not a big loss.

"I would go to Fry's in San Jose or Santa Cruz Electronics, which has great customer service," he said. "You can get cables for less at an office supply store. span style="font-weight:bold;">CIRCUIT CITY has a large collection of movies, but you can get that online. For a large format TV, Costco is a better bet."

Troxell said selling technology is tough because it doesn't work for the vendor to stock equipment. New products come out every six months so if the products in stock aren't sold by then, they become obsolete.

Bryan Rudisill, 20, a manager for Circuit City in Santa Cruz, worked there for three years. He is thinking of moving to Long Beach because he sees more opportunities there.

span style="font-weight:bold;">CIRCUIT CITY opened a 27,000-square-foot store on Commercial Way with 75 employees in 1997. The county invested $2 million in the project. Then-redevelopment director Tom Burns said the location could attract Toys "R" Us and span style="font-weight:bold;">CIRCUIT CITY, which it did, create jobs and bring in $450,000 a year in sales taxes.

Friday afternoon, the Santa Cruz Circuit City wasn't empty but it wasn't packed either. Sister Mary of the Salesian School in Corralitos carried in her laptop, hoping someone could help her resurrect the 60-page booklet she was working on to commemorate the order's centennial.

Capitola resident Alberto Garcia wanted to make an exchange. He had received a letter about the company's financial woes, but he hoped the Santa Cruz store would stay open.

Betty Kaiser of Santa Cruz needed to replace a broken monitor but she came away with a Toshiba 32-inch TV for $600, saying, "It was a very good price."

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span style="font-weight:bold;">CIRCUIT CITY's plans to close disappointed Glenn Petersen, who had driven from Watsonville with his daughter.

Last fall, shoppers defected to Best Buy, the nation's largest electronics retailer, when it opened a big store on 41st Avenue.

Darrell Long, a computer science professor at UC Santa Cruz, called span style="font-weight:bold;">CIRCUIT CITY and Best Buy largely interchangeable.

"With all the technology in Santa Cruz, it's a shame we don't have a store that fills that niche," Long said.

County Supervisor John Leopold, a span style="font-weight:bold;">CIRCUIT CITY customer, said, "I didn't realize they were that close to the edge."

He has asked the county redevelopment director to assign someone to work on economic development.

"We need to be building a mix of businesses," he said. "You don't want to have all big-box stores. Locally owned business have the ability to survive a downturn in a way that chains don't."

span style="font-weight:bold;">CIRCUIT CITY said liquidating the stores should last through March, after which they will close.

The company's inventory has a retail value of about $1.8 billion, said James Schaye, president and CEO of Hudson Capital Partners, the liquidator. He said sales will begin with up to 30 percent discounts and will be adjusted as the LIQUIDATION continues.
span style="font-weight:bold;">CIRCUIT CITY stock fell below $1 on the New York Stock Exchange in September and the company was notified Oct. 24 that it could be delisted. In 2000, before the dot-com bust, the stock had been as high at $58.

Circuit City filed for Chapter 11 in November as vendors started to restrict the flow of merchandise. It had been exploring its options since May, when it opened its books to Blockbuster Inc. The Dallas-based chain made a takeover bid of more than $1 billion, but withdrew the offer in July.

Circuit City said it had $3.4 billion in assets and $2.32 billion in liabilities as of Aug. 31. Under court protection, it broke 150 leases at locations where it no longer operated stores and closed 155 stores in the U.S. in November and December.

Here is the Notice from the CIRCUIT CITY WEBSITE

Circuit City would like to thank all of the customers who have shopped with us over the past 60 years. Unfortunately, we announced on January 16, 2009, that we are going out of business.

Please check back later for updates about the status of our website. In the meantime, we hope the information below will help answer most of your questions.
What's going on at Circuit City?

* Due to challenges to our business and the continued bleak economic environment, Circuit City is going out of business and the company's assets will be liquidated to pay off creditors.
* The process was extremely difficult and we were left with no other choice but to liquidate. Circuit City had a proud heritage of serving the public for 60 years and we deeply regret the impact this decision will have on our associates, our customers and the communities where we have operated stores and other facilities.
* We had hoped to be able to emerge from Chapter 11 bankruptcy protection as a stronger, more competitive company and we made significant progress during the reorganization to improve our business. Unfortunately, the economic climate is so poor that we have no choice other than liquidation.
* Liquidators will start arriving in our 567 stores across the U.S. over the weekend, and closing sales will start as early as Saturday, January 17. Closing sales will run as long as it takes to sell existing inventory, but are expected to wrap up by the end of March. When the liquidation sales are completed, the stores will be closed.
* At the company's corporate offices in Richmond, Virginia, a small staff will remain on duty during the completion of the liquidation process; most associates will be relieved of their duties immediately.
* Consistent with federal labor laws, Circuit City associates are receiving 60-days notice of the termination of their employment. Those who stay on to help with the liquidation, of course, will receive pay and benefits. Those who are dismissed earlier will be receiving pay and benefits for the 60-day period beginning January 16, 2009.
* Associates at our company headquarters will be asked to come back on Monday, January 19, to find out more about their status and to retrieve their personal belongings.

Are you also shutting down your operations in Canada?

* No, our Canadian operations will continue. They are not affected by the liquidation of Circuit City's U.S. operations. The Canadian operations employ approximately 3,000 associates.

How many people are losing their jobs as a result of this action?

* Circuit City employs approximately 34,000 associates in the U.S.

Can you provide some background on Circuit City?

* Founded in 1949 as the Wards Company, Circuit City is headquartered in Richmond, Virginia. At the time of the liquidation announcement (January 16, 2009), the company operated 567 stores in 153 media markets in the U.S. and approximately 765 retail stores and dealer outlets in Canada.
* For a timeline history of the company, go to http://investor.circuitcity.com, and click on Company Information.

Will Circuit City stores continue to accept Circuit City gift cards?

* Yes, customers holding Circuit City gift cards may redeem them at full value at our stores during the liquidation sales. Once the stores are closed and the company is out of business, the gift cards will have no value.

Are Circuit City's extended warranties affected by the liquidation?

* No. Circuit City Advantage Protection Plans® (extended warranties) have been backed by third-party independent companies for more than 15 years and as a result, are not impacted by Circuit City's closing.
* Currently, all Circuit City Advantage Protection Plans are fully backed by the Assurant Solutions companies. Assurant Solutions operates as Federal Warranty Service Corporation, Sureway, Inc., and United Service Protection, Inc. Assurant Solutions is part of Assurant, Inc. (NYSE: AIZ), and its extended service contacts are backed by an Assurant insurance subsidiary rated A "Excellent" by A.M. Best Co.

When will the liquidation sales begin?

* Liquidation sales begin as early as Saturday, January 17, 2009, and will last as long as it takes to sell through the merchandise at each of the stores. We expect the sales to wrap up by the end of March 2009.

How much will merchandise be marked down, and can customers negotiate prices for the merchandise?

* There will be clearance pricing, but specific discounts are not being announced. All sale prices are at the discretion of the liquidator. Prices are non-negotiable and all adjustments must be approved by the liquidator's on-site managers.

What payment types will be accepted at the liquidation stores?

* Stores in liquidation will accept cash, Circuit City gift cards and most credit cards. Personal checks will not be accepted. All sales are final.

Will Circuit City's price matching policy or the One Price PromiseSM apply during the liquidation sale?

* Because the liquidation company is in charge of the sales at the closing stores, their policies are in force. So, One Price Promise does not apply during liquidation events, nor does the company's Unbeatable Price Guarantee. All sales are final.

What about returns and refunds?

* Customers can return products they purchased prior to January 16 for a 14-day period for exchange or refunds. All other terms of return policy are in force.
* When closing sales begin on or around January 17, 2009, all sales will be final.

Will delivery service be available for products purchased from liquidation stores?

* No. Unfortunately, we will not be able to provide delivery services for products purchased from liquidation stores.

Will Circuit City offer home theater installations during the closing sale?

* Yes, we will continue to offer home theater installations during our closing sales.

Will Circuit City offer PC services and repairs at liquidation stores during the closing sale?

* Services already underway at the liquidation stores will be completed promptly, but no additional jobs will be accepted at these stores.

Will car electronics installations be available at liquidation stores during the closing sale?

* No new car installations will be offered.

Will Circuit City's extended warranties still be available on products purchased from liquidation stores?

* Yes, we're making no changes to our Circuit City Advantage Protection Plans®. Coverage is national and purchases will still be protected just as they always were.
* Circuit City Advantage Protection Plans® have been backed by third-party independent companies for more than 15 years and as a result, are not impacted by Circuit City's bankruptcy or liquidation.
* Currently, all Circuit City Advantage Protection Plans are fully backed by the Assurant Solutions companies. Assurant Solutions operates as Federal Warranty Service Corporation, Sureway, Inc., and United Service Protection, Inc. Assurant Solutions is part of Assurant, Inc. (NYSE: AIZ), and its extended service contacts are backed by an Assurant insurance subsidiary rated A "Excellent" by A.M. Best Co.

What if a customer purchased products at one of the closing stores and the product needs service?

* For products covered under the manufacturer's warranty, customers should call the manufacturer.
* For products covered under Circuit City Advantage®, guests can call the toll-free number that is printed on the bottom of the product receipt.

Office Depot Closing 112 stores and cutting 2,200 Jobs

Office Depot Inc said on Wednesday it plans to close 126 stores and lay off about 4.5 percent of its workforce and may exit businesses as the economic downturn cuts demand from small businesses and retail customers for office supplies.Shares of Office Depot rose as much as 11 percent as investors cheered the moves."Given the challenging macroenvironment, we favor (Office Depot's) commitment to curb capital expenditures and efforts to improve operating profit," Standard & Poor's analyst Michael Souers said in a research note.

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The Boca Raton, Florida-based Office Depot, which employs about 49,000, said it will reduce its workforce by about 2,200. Most of the reduction will be due to the store closures. Office Depot plans to close 112 underperforming retail stores in North America over the next three months. In addition, 14 stores will be closed through 2009 as their leases expire or other lease arrangements are completed, it said. Office Depot will also close six of its 33 distribution facilities in North America and plans to open roughly 20 new stores in 2009, down from an earlier estimate of 40 stores.

Office Depot expects the actions to result in charges of $270 million to $300 million to be taken in the fourth quarter and in 2009. It also reduced its capital spending plans for 2009 to less than $200 million from about $225 million, which it had forecast in late October.

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Office Depot said it is looking at other moves it expects to result in additional charges in the fourth quarter and into 2009. Those actions may include restructuring or exiting businesses and assessing assets. Office Depot's sales have suffered as small business owners and retail consumers have spent less on office supplies. The retailer said the trend, which has also hurt peers OfficeMax Inc and industry leader Staples Inc , worsened amid the global financial crisis.

In October, Office Depot said it would delay opening new stores after it posted a surprise third-quarter loss. In July, it said it would cut its store-opening plans and slow its remodeling efforts to cut costs and reduce capital spending. At that time, Office Depot also said it was reducing its North American staff and had offered a voluntary exit program for some employees.

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In November, rival OfficeMax said it was cutting 245 corporate staff and field management positions in North America and predicted a significant sales decline in the fourth quarter. OfficeMax has also trimmed store management, halted new store construction and delayed its store remodel program until economic conditions improve.

In early December, Staples posted a quarterly profit that topped analysts' expectations by a penny per share and announced an improved cost-savings outlook. Staples also said it plans to open 75 stores in North America next year.

Shares of Office Depot rose as high as $2.70, and were still up 22 cents, or 9.1 percent, at $2.65 in midday trading on the New York Stock Exchange.

Shares of OfficeMax were up 11.6 percent at $6.84, while shares of Staples rose 6.3 percent to $18.01.

Union Wage Hold-outs may be the Death of Auto Industry Bail-out

A plan worth billions to rescue ailing US automakers collapsed in the US Senate, raising the prospect Friday of imminent bankruptcy for GM and Chrysler with millions of jobs at stake. Last-ditch talks on the 14-billion-dollar package, backed by Democrats and the White House, broke down late Thursday after Senate Republicans insisted that union wages be brought swiftly in line with those paid by foreign automakers.

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"I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight," Democratic Senate Majority Leader Harry Reid said. News of the failed bid to broker emergency loans sent share prices tumbling in Asia and in early European trade. The dollar also fell sharply, hitting a 13-year low against the yen.

For GM and Chrysler, the last hope for a government lifeline rested with the White House, which has so far refused to draw on the 700-billion-dollar Wall Street bailout fund for the reeling car companies. The financial bailout money "may be where they go next," said Republican Senator John Thune. Reid called on President George W. Bush to reconsider his administration's opposition to dipping into the Wall Street rescue fund, known as the Troubled Asset Relief Program (TARP).

"I would hope that the president who has worked so well with us the past few weeks on this legislation would now consider using the TARP money to help the auto industry and the workers of this country." Democrats initially pushed for a portion of the funds for the auto bailout but the Bush administration refused.

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The White House , which suffered a stinging political defeat after backing the Democrats' proposal for the short-term auto rescue loans, did not say if it would relent on freeing up the financial bailout funds. "It is disappointing that Congress failed to act tonight," White House spokesman Scott Stanzel told AFP. "We think the legislation we negotiated provided an opportunity to use funds already appropriated for automakers and presented the best chance to avoid a disorderly bankruptcy," Stanzel said. "We will evaluate our options in light of the breakdown in Congress."

GM , which has warned it could run out of cash within weeks, said in a statement it was "deeply disappointed" at the result. Before the vote, the once mighty car company acknowledged that it was considering bankruptcy among other options and had hired a team of legal advisers. Chrysler said it would "continue to pursue a workable solution to help ensure the future viability of the company."

GM and Chrysler are the most troubled of the iconic Big Three, with Ford in better financial shape but worried about the knock-on effects if their counterparts go down. Along with Bush, president-elect Barack Obama had called on Congress to approve the bailout, citing the dangers of a "rippling effect" from the collapse of the companies. Republican Senator Bob Corker, who spearheaded his party's alternative proposal, said the breakdown came over differences on employee compensation, and said that a union representative from the United Auto Workers was present for the talks. "We are about three words -- three words -- away from a deal," he said.

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Democrat Chris Dodd, chairman of the Senate banking committee, criticized Republican senators for pushing for steep wage cuts and warned the auto industry's fate was tied up with the wider economy. "I'm deeply saddened. But more than saddened, I'm worried," Dodd said. "This will fail, we will go home, and I'm afraid our country will be in deeper and deeper trouble." For workers in the industry, "this will not be a joyous season wondering whether or not their jobs, their livelihoods, their homes, their children's futures are at risk," he said.

The legislation would have provided GM and Chrysler bridge loans to operate until March 31, the date by which they must have crafted a restructuring plan that ensures their long-term survival while repaying government aid.

The bill also required the president to name a special designee, or "car czar," who would oversee the process.

Foes of the plan have said the automakers -- and not taxpayers -- must bear the burden of bad business decisions and declare bankruptcy.

Another one bites the Dust - KB Toys Joins Long list of Companies Filing for Bankruptcy

In another sign of the grim holiday season, KB Toys filed for bankruptcy protection for the second time in four years on Thursday and plans to begin going-out-of business sales at its stores immediately.

The 86-year-old company said in a filing that its debt is "directly attributable to a sudden and sharp decline in consumer sales" because of the poor economy.

That a toy retailer filed for bankruptcy just before Christmas shows how bleak things have become, since such stores make up to half of their sales during the holidays. But analysts expect toy sales this holiday season to be flat or down slightly from last year's total of $10.4 billion, according to market research firm NPD Group, because consumers are cutting back amid the recession.

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In response, toy retailers, including KB Toys, amped up their discounts.

KB Toys had aggressively cut prices to entice cash-strapped shoppers, offering hundreds of toys for $10 or less. It also expanded its value program, which offers deals on new items each week, and offered "Buy 2, Get 1 Free" promotions.

But the deals weren't enough. In the filing in U.S. Bankruptcy Court in Delaware, KB Toys said that between Oct. 5 and Dec. 8 sales in stores open at least one year, a key retail metric known as same-store sales, fell nearly 20 percent.

The company said it considered its alternatives and decided the most viable way to cover its debt was to begin liquidating its stores via immediate going-out-of-business sales. KB Toys also plans to sell its wholesale distribution business, according to the filing.

Filing for Chapter 11 protection rather than Chapter 7 liquidation allows a company to retain more control over selling off assets. Under Chapter 7, the court immediately appoints a trustee to take over the case.

KB Toys declined to comment beyond what was in the filing.

The company operates 277 mall-based stores, 40 KB Toy Works stores which are mainly in strip malls, 114 outlet stores and 30 short-term holiday stores. It has 4,400 full-time employees and 6,515 seasonal employees.

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KB Toys, which says it has about $480 million in annual sales, said in the filing that it had debts between $100 million and $500 million and total assets in the same range.

Vendors top the list of unsecured creditors. The toy retailer owes Hong Kong-based toy manufacturer Li & Fung about $27.2 million, El Segundo, Calif.-based Mattel Toys $1.3 million and St. Louis-based Energizer Battery more than $728,000. Other creditors are Hasbro Inc. and the maker of Legos.

Pittsfield, Mass.-based KB Toys filed for bankruptcy in 2004 and emerged nearly two years later as a subsidiary of investment firm Prentice Capital Management, which owns 90 percent of the company's common stock. During that bankruptcy, KB sold its retail Internet operation to eToys Direct Inc., cut the number of retail stores from 1,200 to 650 and closed a distribution center.

Jim Silver, a toy analyst at timetoplaymag.com, said KB had been struggling since emerging from its first bankruptcy protection in 2005.

"Manufacturers were concerned about shipping to them over the last couple of months," he said. "This did not happen all of a sudden."

He said that the timing of the filing was a surprise, however, since he expected it in January. But as manufacturers balked at shipping "hot" holiday toys, their sales dropped off. KB Toys also suffered from deciding not to sell video-game consoles such as the Nintendo Wii, one of the few toy items selling well this year, Silver said.

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"Their business model didn't work," he said. "They're selling closeouts, today people want the hot toys."

Amid the consumer spending slowdown and recession, KB Toys joins a growing list of retailers filing for bankruptcy protection. Others include Mervyns LLC, The Sharper Image, Steve & Barry's, to Linens 'N Things and Circuit City Stores Inc.

Chinese Toy manufacturer Slumps due to KB Toys announcement

Li & Fung Ltd. slumped the most in six weeks in Hong Kong trading after a U.S. client filed for bankruptcy and the Senate rejected a $14 billion bailout plan for American automakers, threatening a deepening of the recession.

Li & Fung, which supplies toys and clothing to Wal-Mart Inc. and Target Corp., fell 13 percent to close at HK$14.86, the biggest decline since Oct. 31.

More than a dozen U.S. retailers have entered bankruptcy this year as consumers cut spending during a yearlong recession, according to data compiled by Bloomberg. Meanwhile, 1 million jobs may be lost in the U.S., where Li & Fung makes more than 60 percent of its sales, after the bailout plan for automakers was rejected, White House spokeswoman Dana Perino said.

``Everyone is quite negative about the overall economy in the U.S.,'' Jackson Wong, investment manager at Tanrich Securities in Hong Kong, said over the phone from Hong Kong. ``This will hit export companies like Li & Fung as it heavily relies on its exports to the U.S.''

KB Toys Inc. filed for bankruptcy in the U.S., saying it owes Li & Fung $27.2 million.

The Hong Kong-based trader said KB Toys owes it about $5 million. The remaining $22.2 million is owed to factories that supply Li & Fung, the company said.

Sudden Sales Drop

``The KB Toys bankruptcy is certainly one of the reasons for the stock decline,'' Wong said.

KB Toys, the 86-year-old toy retailer based in Pittsfield, Massachusetts, said yesterday it filed for bankruptcy with plans to close its stores because of a ``sudden drop'' in sales in the past two months. This comes three years after KB Toys ended a previous bankruptcy by closing almost half of its 1,200 stores. The chain has shut hundreds more since amid increased competition from Wal-Mart, Toys ``R'' Us Inc. and Target.

``Li & Fung's exposure to the U.S. is quite large,'' Castor Pang, a strategist at Sun Hung Kai Securities Ltd. in Hong Kong, said. ``A lot of companies there have issued profit warnings and more companies may come out with similar news like KB Toys.''