U.S. would ease GM bankruptcy if restructuring falls short

U.S. would ease GM bankruptcy if restructuring falls short

Automotive News | May 8, 2009 – 11:00 pm EST


WASHINGTON (Reuters) — The U.S. government would facilitate a bankruptcy at General Motors, like it did with Chrysler LLC, if GM’s restructuring effort falls short this month, U.S. Treasury Secretary Timothy Geithner said.

"There is a range of ways to achieve this. You saw what we did in the Chrysler context as one way to do it. and if that proves necessary in the GM context, we’ll do that," Geithner said in an interview Friday. "But we’re not at the point where we need to make that judgment yet."

Geithner said in a separate interview with PBS’s “Newshour” program that the administration is "quite confident now that we’re going to be able to put together something" that would allow GM to survive and be viable.

GM is trying to overhaul its business by a government-imposed June 1 deadline but has recently run into steeper obstacles with debtholders over a proposed equity exchange and with labor over planned production cuts.

GM, which posted a $6 billion net loss for the first quarter Thursday on top of $82 billion in combined annual losses since 2004, is trying to cut more than $40 billion in debt and secure concessions from the UAW. Talks with the union began this week.

Too complex?

Some analysts believe GM’s problems are too complex to be dealt with out of bankruptcy, and the company’s new CEO, Fritz Henderson, has said the automaker would file for court protection if it fails to win necessary givebacks.

Peter Kaufman, restructuring expert and president of New York investment bank Gordian Group LLC, said GM would most likely follow Chrysler into bankruptcy.

"This is not playing by the rules, but the government has shown it’s not terribly interested in playing by the rules," Kaufman said. "I think this will embolden the government to do what they’re already contemplating for GM."

GM has been surviving since the start of the year on U.S. bailout money, which so far totals $15.4 billion. It has asked the government to accept a majority stake in a new GM in exchange for at least half of the bailout debt.

A White House/Treasury task force directed Chrysler’s entry into Chapter 11 and its plans for an alliance with Italy’s Fiat S.p.A. The task force will have final say over GM’s bid to prove viability outside of court.

No decision yet

Obama administration officials said no decisions have been made on any plans for an equity stake in a restructured GM, but President Barack Obama has said he does not want the government running auto companies.

"Where that is necessary in the context of this, we’re going to try to make sure that we get out as quickly as possible and that our role is limited to protect the taxpayers’ interest," Geithner said.

"We don’t want to be involved in day-to-day decisions at these companies. And it will be a difficult balance to strike, but we’ll be able to find the right balance," he said.

He said it would be "hard to judge" how quickly an auto stake might be unwound.

Sen. Robert Corker, a Tennessee Republican and Banking Committee member, said in an interview with Reuters that any government equity stake in GM would likely be held for more than one year.

One report said the government would likely hold the stake for at least two years.

Corker said even if GM restructures, it will emerge with sizeable debt and likely would need more debt forgiveness or additional government aid.

GM operates a manufacturing facility in Tennessee, and Corker has met with Henderson to discuss the future of that operation, in Spring Hill.

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