U.S. To Steer GM Toward Bankruptcy

Washington Post: Chapter 11 Filing Could Come Next Week For GM; Chrysler Set To Emerge From Bankruptcy Soon

(Washington Post)  This story was written by David Cho, Peter Whoriskey and Kendra Marr.

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The Obama administration is preparing to send General Motors into bankruptcy as early as the end of next week under a plan that would give the automaker tens of billions of dollars more in public financing as the company seeks to shrink and reemerge as a global competitor, sources familiar with the discussions said.

The move comes as the administration prepares to lift the nation's other faltering car company, Chrysler, from bankruptcy protection as soon as next week, industry sources said.

The shifts into and out of bankruptcy are landmarks in the Obama administration's attempt to broker a historic restructuring of the American auto industry in the space of months.

The legal tactic is viewed by some as the best means of reviving the companies. But the speed of the government-led transformation has triggered complaints that the rights of investors and dealers are being trampled. Meanwhile, fears that a bankruptcy could lead to cascading business failures are spreading throughout GM's vast chain of suppliers.

Under the GM draft bankruptcy plan, the company would receive just short of $30 billion in additional federal loans, a source said.

The figure is a starting point in negotiations between the government and the company, the source said, and could change. A cash injection that large would boost the U.S. investment in GM to nearly $45 billion. The timing of the filing is also fluid, and could happen the first week of June.

The government previously indicated that it planned to take at least 50 percent of the restructured company, and likely would take the right to name members to its board of directors, as it has at Chrysler, where the government will control four of nine seats.

The United Auto Workers retiree health fund is set to own as much as 39 percent of the restructured GM, in exchange for giving up its claim to at least $10 billion that the company owes it. Yesterday, the union announced that it reached an agreement with GM that will reduce the company's labor costs.

Still unknown is what part the Canadian government might play in the ongoing GM restructuring.

GM operates several plants north of the border. The Canadians agreed to invest about $3.5 billion in the Chrysler restructuring and control one of the nine board seats.

In the GM negotiations, the Canadians are poised to make a similar investment, but they are seeking assurances that the share of GM production in their country will remain the same.

"China isn't putting up the money, and Mexico isn't putting up the money," said Tony Clement, Canada's Minister of Industry. "But if we're putting up the money, just as the Americans are, then we have the right to protect our production capacity."

Clement added that the Canadian Auto Workers union would have to make more concessions before the government agrees to get involved in the GM rescue.

"We've basically been joined at the hip with U.S. Treasury on our approach with both Chrysler and GM," he said. "We have officials down here in Washington all the time. We basically review the information together. We devise strategy together and execute strategy together."

Both Chrysler and GM have been saddled with too much in debt and labor costs to compete against rivals from Japan and Korea, industry analysts say.

To alleviate the financial burdens, the Obama administration has engaged for months in negotiations with the union, dealers and creditors in hopes of reducing automaker costs without having to resort to bankruptcy court.

But last month, the administration concluded that the only way to free Chrysler of its debt was to file for Chapter 11, and it is now nearing a similar decision with GM.

The chief obstacle to an out-of-court settlement for GM remains: There has been no agreement between the company and the investors who hold $27 billion worth of GM bonds.

Under orders from the Obama administration, GM has offered to give the bondholders a 10 percent equity stake in the restructured company in exchange for giving up their bonds.

So far, however, the investors have resisted that proposal and if no accord is reached by June 1, GM will follow Chrysler into bankruptcy.

The speed with which the Chrysler bankruptcy has proceeded has given the administration more confidence that the best path for GM may be a similar trip, where the claims of disgruntled creditors and dealers can be more easily resolved.

In the Chrysler proceedings, the court has yet to stand in the way of plans to create a new company led by Italian carmaker Fiat. Chrysler's existing assets would be sold to the new company and the new entity could be up and running as soon as next week.
That's because Chrysler is asking U.S. Bankruptcy Judge Arthur Gonzalez to waive the customary 10-day waiting period before the order approving the sale becomes effective. The hearing on the sale is scheduled for next Wednesday at 10 a.m.

Gonzalez has already granted a similar request to expedite proceedings. Time and again in court, Chrysler executives and attorneys have argued -- and the court has agreed -- that Chrysler's core assets are "wasting" and that an immediate sale must take place to preserve value.

"Subject to the closing conditions, a new Chrysler could emerge as soon as the ink is dry on the judge's order," said Scott Van Meter, managing director of LECG, a consulting firm.

The administration is taking steps to prepare. It is drafting the paperwork for a $4.7 billion loan to sustain Chrysler after it emerges from bankruptcy. On Wednesday, the automaker announced that C. Robert Kidder, former chairman of Borden Chemical and of Duracell International will become the company's new chairman. He will succeed Robert L. Nardelli.

Chrysler still could encounter some delays. The company faces a new legal challenge from pension funds representing Indiana teachers and police officers as well as a state construction fund. The investors, who contend that the automaker's sale violates their rights as senior secured lenders to Chrysler, are seeking to move the bankruptcy proceedings to federal district court, which has authority over the bankruptcy court.

A hearing on the matter is scheduled in district court Tuesday.

There are also challenges outside court. Chrysler has moved to close 789 dealerships on June 9. But Sen. Kay Bailey Hutchison (R-Tex.) has introduced legislation that would withhold federal funding if the automaker does not give dealers an extra 60 days to close down operations and sell remaining inventory. Her amendment has won the backing of a number of other senators.

Judiciary Committee chairman Rep. John Conyers Jr. (D-Mich.) said he hopes to meet with White House officials today to discuss changing Chrysler's bankruptcy plan and GM's future. Conyers did not outline what he wanted, but a nine-person panel he assembled for a hearing yesterday offered a hint. Liberal consumer advocate Ralph Nader, a conservative Heritage Foundation analyst and minority auto dealers all criticized the automakers' restructuring.

Conyers and other committee members attacked the administration for abusing bankruptcy laws, unfairly eliminating dealerships and jeopardizing consumer safety.

"GM now stands for Government Motors," said Rep. Lamar Smith (R-Tex.). "While the UAW is cashing in, it's the dealers, creditors and American taxpayers who are being forced to cash out."

Staff writer Tomoeh Murakami Tse in New York contributed to this report.

[venkata4--2008]

10 years ago I was paying nothing from pay check for the health insurance and $5 co pay for branded prescription drugs. Today I pay $450 per month for my employer provided health insurance and $40 for branded prescriptions. The UAW auto employees still pay less for all these benefits what we all are paying 10 years ago + job bank that keeps paying 90% pay + benefits for 2 years. Top GM managers OK and thought they are getting their cut as huge compensation and lavish bonuses and invested billions in new truck plants as Toyota sitting 10,000 across the globe and invested in Hybrids. In my opinion UAW & the top management bankrupted the GM.

[dfnj2009]

Let GM die! GM is the worst managed company in American history. Wagner's lavish pension is valued at $22 million. No company should be allowed to continue to stay in business when executives are getting such lavish pensions!!! PURE INSANITY!!!!

[babooph]

All those idiot,overpaid,managers did not notice V W winning big in 1950,60 etc.....smaller gas savers - now they act surprised at the "NEW" conditions.

[golfered2]

GM just got another 4 Billion dollars of our taxpayer money. GM is also paying it's UAW employees 80% of their pay while they are shut down for the 9 weeks this summer. Good friend of mine brags that he will be playing golf and fishing all summer long and using no vacation time to do so. WHEN ARE WE GOING TO STOP BEING SUCKERS TO THE UAW!!!!!!

[Trust_me_]

Buy Toyota, and I will tell you why!

Avoid long lines at the DMV to get your car fixed.

I can see it now,

you are in a long Queue at the DMV and you are next in line, after the usual wait at your local DMV.

While you steady your self for battle over your government backed car warranty, you over hear the guys problem in front of you, apparently he has appendicitis and is trying to convince the Officer of the department of handouts, that?s he needs an operation. And in an effort to appease the laid up voter, the operation is immediately scheduled for the second Thursday of next month if the problem persist.
You are now up to bat

Officer of the department of handouts:
Good day sir, What seems to be the problem today?

Voter
Its my car.

Officer of the department of handouts:
What is the make and model of our car then?

Voter!
It is a 2009 GM E_clownomy Box trot lx

Officer of the department of handouts:
Ok, I need you to take the car to the maintenance inspection department at the state hub, Usually 50 miles from your house.

Please bring all of your monthly inspection and service data with you to your vehicle repair investigation because although it is all e filed, we must see the original paper work.

Now just to be upfront, although we do cover our cars from bumper to bumper for 5 yrs or 20,000 carbon credits, the car will have to go into the GM work shop in china and we do not cover the shipping charges. But rest assured, all of the repairs will be covered at an adjusted tax credit of 75 percent including any claw back charges that may apply.

Voter!
But it just needs the carbon credit distance calculator reset?

Officer of the department of handouts:
Yes sir, I understand how you feel but this will require an official UAW certified reset analysis tech that has been fully vetted and employed by the union.

Would you like to buy a buss pass until your car can be sent back from china?

[whitemale08]

Why isn't Obama steering Goldman Sucks into bankruptcy first?

Goldman Sucks/JP Morgan/BoA/AIG and others are the real parasites.

Obama will pay the ultimate political price for his double-standards.

[mjvwsr]

"U.S. To Steer GM Toward Bankruptcy"

won't take much of a driver.

[retiredgustav]

While everyone is bashing GM has anyone noticed Toyota lost 8.6 Billion. The problem is cars last too long and consumers are getting smart and not buying new ones.

[vinylogy]

They should have gon bankrupt BEFORE striking any deals with the UAW. That whay they could have cut off all those fat retirees basking in luxury spas. They could also have repudiated any existing union agreements. Instead Obama wants to look out for the corrupt unions.

[sjc_1]

Yes, it bothers me but when GM talked with Bush years ago, he said forget it. Something could have been done years ago, but since it was ignored, this is what we have to live with.

[amazedd]

So, whilst in the US the means of production are put into the hands of the workers, in Russia, meanwhile, the same means of production are taken away from incompetent workers and placed under the stewardship of engineers. Curiouser and curiouser.

[Hermit1948]

"The Obama administration is preparing to send General Motors into bankruptcy as early as the end of next week..."

Doesn't this disturb anyone?

[sjc_1]

Good, maybe that will stem some of the brain damage.

[specialty8]

sjc,
Wont have to worry about chugging Lonestar to much longer, Obama is getting ready to put a major tax on that also along with anything else he can get his hands on.

[sjc_1]

"...said Rep. Lamar Smith (R-Tex.)"

Typical powerless Texas blow hard Rep. that has nothing but one liners that his Texas buddies can remember while they swill Lone Star beer.

[specialty8]

endrepubs,
He don't know, I quess Pelosi told him to.

[endrepubs]

If bankruptcy was eminent. Why did we give them all that money to stop them from going bankrupt?

[specialty8]

Good job Obama, everything is going as planed isn't it. You will soon control the last industry this country has left. I sure it will run as well as SS and other goverment programs.