Controlled bankruptcy most likely destiny for GM?

April 1, 2009

(ChattahBox) — According to a new report, President Obama believes, a quick, negotiated bankruptcy is the most likely way for General Motors to restructure and become a competitive automaker. GM has been given 60 days to fix its debt-ridden balance sheet, cut billions in costs and take other steps to transform itself into a profitable entity. The president also is prepared to let Chrysler go bankrupt and be sold off piece by piece if the automaker can’t form an alliance with Italy’s Fiat, according to a Bloomberg report, citing members of Congress who were briefed on the GM and Chrysler situation. While private investment firm, Cerberus Capital Management, which bought Chrysler in the summer of 2007 tries to salvage what it can, Chrysler must make the same cuts as GM, and sign up Fiat as a partner, all in 30 days.

GM and Chrysler have spent months closing plants and shrinking their workforces. But their biggest challenges have been trying to secure ample labor cost concessions from the United Auto Workers union and persuading reluctant bondholders to accept unfavorable terms on the debt GM wants them to swap for equity in the company. The government may seek to ease General Motors into what it calls a “controlled” bankruptcy, by persuading at least some creditors to agree to a plan that would split the company into two pieces.   It would then use a sale authorized under Section 363 of the bankruptcy code to quickly sell off the desirable assets to a new company financed by the government. These good pieces might include Cadillac and Chevrolet, as well as assets the company needs to run the business. Less desirable assets, brands like Hummer and underperforming factories, would be left in the old company. Proceeds from the sales, including stock in the new company, would be given to the old G.M., helping to settle claims.


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