MOTORSNEWS GENERAL MOTORS:Faced with a possible bankruptcy filing, General Motors is still attempting to slash its debts, writes Jeff Green
GENERAL MOTORS is speeding up preparations for a possible bankruptcy filing in the US, even as directors scout for deeper savings this week to avoid that outcome, those familiar with the plans have said.
GM would focus on forming a new company from its best assets if court protection is needed, they said. Efforts to set a new cost-cutting goal focus on how to go beyond a proposal to slash debt by 46 per cent and shed 47,000 jobs in 2009, and will include talks with Treasury officials.
The moves are a response to US president Barack Obama’s March 30th rejection of GM’s bid to keep $13.4 billion in federal loans.
With bondholders and the United Auto Workers (UAW) balking at concessions, a push for more savings makes bankruptcy more “probable”, recently appointed chief executive Fritz Henderson has said.
“The best outcome is for an arrangement outside of bankruptcy, but that will be very difficult,” said Dennis Virag, president of Automotive Consulting Group. “A bankruptcy of a company the size and complexity of GM is not simple, and it’s probably going to get ugly.”
GM’s board met on Monday and more discussions are planned both within the company and with the Obama administration after the firm was given 60 days to restructure, without a specific savings target. New chairman Kent Kresa said beforehand the agenda would be “extensive”.
Planning for a court filing was ratcheted up in February as a precaution against a defeat for GM’s bid to keep its US loans. Detroit-based GM said it prefers to restructure outside bankruptcy court after $82 billion in losses since 2004.
Preparations include looking at a 363 sale, referring to a section of the Chapter 11 bankruptcy code that would help create a new car giant from its assets and brands, boosting GM’s survival chances, the people said.
GM spokesman Greg Martin declined to comment on any meetings this week involving the firm, the US treasury or Obama’s auto taskforce.
“As we have from the very start, we’re going to continue to work closely with the taskforce,” Martin said yesterday.
GM has $62 billion in debt and its February 17th presentation to the treasury envisioned shrinking that sum to $33.5 billion by trimming obligations to a union-retiree health fund and getting bondholders to accept less in an equity swap.
Until new savings requirements are agreed, substantive talks with the UAW and bondholders may be delayed.
Henderson said last week that the Treasury hadn’t given GM new cost-cutting guidelines. On Monday, he told CNN that GM needs to “go further” to find savings.
One clue as to the depth of GM’s additional required savings may have come from John F Smith, group vice-president for product planning, who told reporters last week that GM may have to trim expenses so it can break even when US vehicle sales are as low as 10-10.5 million units.
The carmaker’s previous break-even goal was at an industry-wide rate of 11.5-12 million cars and light trucks. Deliveries in March ran at an annual rate of 9.86 million vehicles.
– Bloomberg