GM No Longer Considers Chapter 11 Filing Off The Table
By Chris Haak
With the economy in the US and globally showing no signs of improvement, and the new-vehicle market showing no signs of life, the cash situation at GM has become even more desperate, if that’s to be imagined. The company that had previously not even uttered the word ‘bankruptcy’ except to say that it was out of the question and not an option is now making noise that in spite of all of the negatives that go along with declaring bankruptcy, it’s very much on the table unless the company gets more money from the US government, and quickly.
The Treasury Department believes that GM needs at least another $5 billion from the government in order to survive beyond the first quarter of 2009. So far, the company has received $9.4 billion. The Wall Street Journal reported over the weekend that the usual “people familiar with the situation” indicated that GM is going to present the government with two alternatives – that the government must either commit additional billions to keep the company afloat, or commit additional billions for debtor-in-possession financing because those funds (far more money would be required for that than has already been committed to keep the lights on thus far) would likely be unavailable from anywhere in the still credit-frozen and shell-shocked private sector.
The Journal also reported that GM’s plan in a potential Chapter 11 filing would be to combine all of GM’s “viable assets,” including international operations and some of the US-sold brands, into a new company, then selling off or liquidating the remaining ones in bankruptcy proceedings. Under this possibility, contracts with suppliers and employees would also be re-worked to be more favorable to the company. (This sounds an awful lot like the good bank/bad bank concept being thrown around in the banking world lately, with that version of the plan taking toxic assets from banks and putting them all in a “bad bank” and off of the balance sheets of the banks that hold them currently.)
Part of the reason that GM is basically firing a pre-emptive salvo is because critical negotiations required by the terms of the assistance already received have not been going well, particularly with bondholders and the UAW. Both the bondholders (those entities who hold GM’s enormous debt) and the UAW feel that other parties such as dealers, and asbestos litigants are note being asked to shoulder as much of the burden as they are. Further complicating things for GM and Chrysler is the fact that the Obama administration has not yet appointed a so-called “Car Czar” to oversee the implementation of the bridge loans and the terms attached to them. As envisioned by the original terms of the loans, the Car Czar would have the power to compel interested parties to take concessions, but with that job being vacant, there’s nobody who can subdue opposition and encourage agreement.
Neither Congress nor the administration wants to have GM’s (or Chrysler’s) blood on its hands with the terrible unemployment and job loss numbers showing up every month, so I would definitely expect Washington to bend the rules – or change them – to allow GM and Chrysler to meet the requirements previously set forth by the earlier bailout package. Already, Nancy Pelosi and Barney Frank have sent a letter to GM CEO Rick Wagoner and Chrysler LLC CEO Bob Nardelli outlining their expectations for tomorrow’s presentations. They asked that the plans to be presented demonstrate “a commitment that the sacrifices necessary to turn the industry around will be shared equitably by all stakeholders” and “a demonstrated commitment to restructure your company’s debt in a manner that protects the interests of the taxpayers.” That doesn’t sound like the highest of hurdles to ask a company to clear. It sounds like an “A for effort,” regardless of the lack of results at this point (Saab’s, Hummer’s, and Saturn’s fates are all still up in the air, for example) will be enough for Congress to give the companies more money. Still, a few more billion here and there would probably cost the government a lot less than having to backstop debtor-in-possession financing would.
We’ll know a lot more in the next two days about how this chess match will turn out.
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