General Motors appears to be on a fast road to bankruptcy . Chief executive
officer Fritz Henderson has already described a bankruptcy filing as
‘probable’ as the U.S. Treasury’s June 1 deadline for reorganizing the
company draws near. Also, the fact GM actually announced it was moving up
its normal date for paying suppliers from June 2 to May 28 further suggests
bankruptcy is likely, says Brad Coulter of O’Keefe & Associates of
Bloomfield Hills, which specializes in helping distressed manufacturing
companies. ‘To me it’s a pretty clear indicator that they plan to file right
around the June 1 deadline.’ At the same time, a half dozen senior GM
executives have dumped shares even though the stock has been trading for
less than $2.
Meanwhile, the work necessary for averting a GM bankruptcy remains undone.
Though the automaker is reportedly making progress on negotiations with the
United Auto Workers, open issues remain and the GM even got into a public
spat with the UAW over importing cars from China and Mexico. The union is
now demanding more assurances about what cars GM plans to build in the U.S.
in the future.
On a more positive note, the two sides have reportedly reached agreement on
how to finance the VEBA, which was set up to fund retiree healthcare
benefits for GM’s blue collar workforce. GM is said to be agreeing to put in
half of the $20 billion it owes the VEBA and to fund the other half with GM
stock. The agreement appears to be very similar to the deal Chrysler LLC
reached with the UAW. That deal puts the UAW in control of the new Chrysler,
with 55% of the stock. The union has also reportedly agreed to cut labor
costs, though neither the union nor GM would confirm that figure.
As part of the overall restructuring plan put forward by the company, 16
manufacturing facilities in the U.S. will be closed, including four assembly
plants, according to Alan Reuther, director of the UAW Washington office.
In a related move, GM announced on Friday that 500 dealers who handle
Hummer, Saab and Saturn brands would be moved outside of GM’s dealer network
or terminated if a buyer for those nameplates cannot be found. Also on
Friday, GM began notifying 1,100 GM dealers that their franchises would be
terminated because they have failed to meet sales targets. Of GM’s other
4,500 dealers, the automaker expects to cut 900, and may use bankruptcy to
get that done.
The biggest sticking point in any bid to avoid bankruptcy is the complexity
of GM’ debts. Chrysler’s 40-odd creditors could fit into a large conference
room. GM’s creditors, however, could fill up most of the seats in the
University of Michigan’s football stadium. The bondholders include an
estimated 127 major financial institutions, including, banks, hedge fund and
mutual funds as well as another 100,000 or so small holders that represents
a cross section of American savers.
The bondholders complain that neither GM or the U.S. Treasury Department
has held any kind of serious discussions with them. In fact, GM CEO
Henderson has described the offer to bondholders 225 shares of GM stock for
every $1,000 of bond face value as a take-it-or-leave-it proposition.See TIME’s pictures of the week.
