Plus: Suppliers Struggling, Chrysler Emerging, Consumers Brightening, Orders Rising and MORE.

General Motors Files for Bankruptcy
Once the symbol of U.S. economic dominance, General Motors Corp. — burdened with $173 billion in liabilities compared with its $82 billion in assets — handed over its bankruptcy filing to a clerk at the federal court in lower Manhattan this morning.

Senior officials on Sunday detailed what they hope will be a swift process in which GM should be able to reemerge from bankruptcy protection as a new, leaner company within 60 to 90 days. Under the terms of the bankruptcy, announced last night, U.S. taxpayers will own 60 percent of GM when its court-supervised restructuring is completed in 60 to 90 days. The Canadian and Ontario governments will own 12 percent, the United Automobile Workers union 17.5 percent and unsecured bondholders 10 percent.

Kent Kresa, chairman of the company’s board of directors, said in a statement that the board authorized the filing “with regret that this path proved necessary despite the best efforts of so many.” Optimistically, he added, “Today marks a new beginning for General Motors. A court-supervised process and transfer of assets will enable a new GM to emerge as a stronger, healthier, more focused and nimbler company with a determination not to just survive but to excel.”

The so-called New GM, under agreement with the U.S. Department of the Treasury, will consist of GM’s “strongest operations and brand” worldwide to carry substantially less debt and lower operating costs for the automaker. “Our manufacturing operations, which already are among the most productive in the industry, will emerge even leaner, stronger and more flexible, as part of the New GM,” Gary Cowger, group vice president of GM Global Manufacturing and Labor Relations, said in a statement. “Flexible manufacturing enables us to quickly respond to consumer preferences and changing market conditions.”

For more information, see GM’s “Restructuring” Web site.

Suppliers Expected to Struggle after GM’s Bankruptcy
“[B]attered by losses from slumping vehicle production,” GM’s parts suppliers “face new threats to their survival as the largest U.S. automaker prepares to idle factories in bankruptcy,” Bloomberg News says. The suppliers “whose sales will shrink when their biggest customer shuts plants for as long as nine weeks” include American Axle & Manufacturing Holdings Inc. and Shiloh Industries Inc., as “payments in bankruptcy court for old bills will only cushion the blow of lost GM business,” according to the parts makers.

“More automotive parts suppliers will file for bankruptcy in the weeks ahead, analysts said, a consequence of a cash drought brought on by falling production that could intensify after General Motors Corp.’s expected filing for Chapter 11,” the Detroit Free Press reports. Last week, Visteon Corp. and Metaldyne Corp. — which together employ thousands of workers in Michigan — filed for bankruptcy protection. They followed Hayes Lemmerz International Inc. and Noble International into bankruptcy this year.”

Auto-parts supplier Visteon, which is the top supplier to and a former subsidiary of Ford Motor Co., cited declining liquidity, impending debt payments and the economic turmoil in the automotive industry in its bankruptcy-protection filing on Thursday. “In an effort to protect a key supplier, Ford has agreed to support debtor-in-possession financing and take assignment of asset-backed loans under a revolving credit facility,” the Associated Press reports.

Chrysler Set to Emerge from Bankruptcy
A court’s decision to approve the sale of Chrysler LLC’s assets has given the automaker a new lease on life. “Chrysler’s transformation from bankruptcy to a new company owned by Fiat, U.S. and Canadian taxpayers and UAW retirees, whose health care benefits could shrink in coming years, has been approved,” the Detroit Free Press says.

On Sunday, a bankruptcy judge approved the sale of most of Chrysler’s assets to a group led by Italian automaker Fiat, “clearing the way for the automaker to emerge from Chapter 11 protection soon,” according to reports. Yesterday’s ruling helps Chrysler, which filed for bankruptcy protection April 30, meet President Barack Obama’s goal of completing the bankruptcy procedure within 60 days. The sale to Fiat means the company could be out of bankruptcy within the government’s 30- to 60-day time period.

Not all of Chrysler moves to the new company. Eight factories will be sold or shuttered. Proceeds from such asset sales will go to repay some of the $4.9 billion in taxpayer assistance Chrysler has received since its April 30 bankruptcy filing.

“A $2 billion cash payment to about 45 banks and investments funds who will forgive $6.9 billion in loans, and at least $8.9 billion in aid to Chrysler has come from U.S. taxpayers,” the Detroit paper reports. “At least $4 billion of that money will not be repaid.”

Industry: Will Americans Quit Buying New Cars?
While some analysts blame the decline of America’s automakers on “stubborn unions, a culture of conflict, poor quality and bad political decisions,” others worry car sales in America will remain low for all auto manufacturers worldwide.

“For all the drastic cuts and financial overhauls that are meant to secure a future for General Motors and Chrysler, their prospects in coming years will be determined more by the answer to a simple question: Can American drivers live without that new-car smell?” the New York Times says.

The market has “collapsed by 46 percent to below 10 million, as people are making do with the cars they have, leaving the industry to debate — and worry — about what the new normal will be once the recession ends.” Some say the “downturn is temporary and that sales will spring back in a few years. Others believe Americans will rethink whether they need so many cars, particularly new ones.” Lifestyles have also changed: “As many people move back to cities from suburbs, they are swapping three-car garages for a single parking space.” Meanwhile, public transit use is up.

The Treasury Department’s advisers initially expected automobile sales to pick up late next year, but now they foresee no jump in demand in 2010 let alone in 2009. “And even five years out, they expect annual sales to be about 15 million, still well below the peaks of this decade,” the Times reports.

New Unemployment Claims Drop
The U.S. Department of Labor reports that initial claims for unemployment insurance fell 13,000 last week, to a seasonally adjusted 623,000, from a revised figure of 636,000 in the previous week, a sign that companies are cutting fewer workers. The number of new claims “was below analysts’ estimates of 635,000,” according to the Associated Press.

However, the number of people continuing to receive unemployment benefits rose to 6.8 million — the largest total on records dating back to 1967 and the 17th straight record week — depriving Americans of the income needed to propel spending and stoke a vigorous recovery.

Consumer Sentiment Rises But Remains Low
According to the latest survey by the University of Michigan and Reuters, U.S. consumer sentiment rose in May but remained at relatively low levels.

“While consumers anticipate an improved economy, they nonetheless think that their own financial situation will improve only marginally during the year ahead,” according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers. Consumers still view their finances as out of balance with the economic realities they now face, and want to continue to increase their savings and reduce their debts. These intentions will mute the pace of spending gains during the year ahead.

The University of Michigan/Reuters consumer sentiment index rose to 68.7 from 65.1 in April. The mid-May estimate was 67.9, and economists were looking for a final May result of 68, according to MarketWatch. The index, which hit a 28-year low of 55.3 in November, has averaged 88.2 over the last 10 years.

The Conference Board reports similar findings, in that consumers have brighter expectations for jobs in coming months, but their overall confidence remains relatively low. The jump in The Conference Board‘s latest reading of U.S. consumer confidence is the fourth-largest in the 32-year history of the survey, and the index is at its highest level in eight months.

“Looking ahead, consumers are considerably less pessimistic than they were earlier this year, and expectations are that business conditions, the labor market and incomes will improve in the coming months,” Lynn Franco, director of The Conference Board Consumer Research Center, says “While confidence is still weak by historical standards, as far as consumers are concerned, the worst is now behind us.”

Business and consumer confidence is also higher in the eurozone, with the Wall Street Journal (subscription required) reporting that both in the 16 countries that use the euro “improved for the second straight month in May, reaching a six-month high and suggesting that economic activity will contract at a slower pace in the second quarter.” According to The Journal, “the sustained pickup in confidence from record lows is consistent with other recent evidence that has indicated the euro-zone economy won’t contract as sharply in the second quarter as it did in the first.”

U.S. Manufacturing Orders Rise
“In a sign that business investment may be stabilizing, orders for goods like metals, machinery and electronic equipment picked up in April,” the New York Times reports on newly released government data. The U.S. Department of Commerce on Thursday said orders for durable goods rose 1.9 percent last month, by $3 billion to a total of $161.5 billion. This was the second increase in the last three months and followed a 2.1 percent March decrease.

Non-defense new orders for capital goods in April decreased 2 percent to $49.5 billion. Defense new orders for capital goods in April increased 23.2 percent to $10.8 billion.

Manufacturers say their “outlook is improving slightly, and sharp declines in industrial production have decreased this spring,” the Times reports. “Construction spending rose modestly in March, and some home builders are beginning to feel a bit more optimistic.”

“The modestly positive data in the April durable goods report adds to a growing body of evidence that the worst may be over for the sharp contraction in U.S. economic and manufacturing growth,” Cliff Waldman, economist for the Manufacturers Alliance/MAPI, writes in an analysis of the Commerce Dept.’s findings.