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GM Said to Speed Bankruptcy Plans as Board Crafts Savings Goals
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By Jeff Green
April 6 (Bloomberg) -- General Motors Corp. is speeding up preparations for a possible bankruptcy filing even as directors seek deeper savings this week to avoid that outcome, people familiar with the plans said.
The bankruptcy readiness focuses on forming a new company from GM’s best assets if necessary, said the people, who asked not to be named because the matter is private. The cost-cut discussions center on how to go beyond GM’s proposal to slash debt by 46 percent and shed 47,000 jobs in 2009, and will include talks with Treasury officials, the people said.
The moves are a response to President Barack Obama’s March 30 rejection of GM’s bid to keep $13.4 billion in federal loans. With bondholders and the United Auto Workers balking at concessions, a push for more savings makes bankruptcy more “probable,” Chief Executive Officer Fritz Henderson has said.
GM’s board met today and yesterday, and more discussions are planned inside GM and with the Obama administration, the people said. Obama gave the biggest U.S. automaker 60 days to restructure, without specifying what steps were needed to stem $82 billion in losses since 2004.
Planning for a court filing was ratcheted up in February as a precaution against a defeat for GM’s bid to keep its U.S. loans, the people said. Detroit-based GM said it prefers to restructure outside bankruptcy court.
GM’s preparations include looking at a so-called 363 sale, a reference to a section of the Chapter 11 bankruptcy code that would help create a new automaker from the assets and brands of GM, boosting the company’s survival chances, the people said.
Reducing Debt
GM has $62 billion in debt, and its Feb. 17 presentation to 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 hashed out, substantive talks with the UAW and bondholders may be delayed, the people said. The board meetings and feedback from the Treasury’s auto task force may create a framework for new discussions this week, they said.
A GM spokesman, Greg Martin, declined to comment today on any specific meetings this week.
“As we have from the very start, we’re going to continue to work closely with the task force on our restructuring plans,” Martin said in an interview.
A Treasury spokeswoman, Jenni Engebretsen, didn’t immediately respond to an e-mail message for comment.
Treasury Meeting
Chief Financial Officer Ray Young was among executives who met with U.S. Treasury officials on April 3 before the board meeting. Additional meetings with Treasury officials are set for this week to review the new restructuring proposals, one person said, without giving a schedule.
“We need to go further,” Henderson said yesterday on CNN’s “State of the Union” program. “If the conclusion is you’ve got to go deeper and you’ve got to go faster, you can’t really afford to take anything off the table.”
Henderson, 50, said he still favors restructuring the company outside of bankruptcy. In a separate interview on NBC’s “Meet the Press” program, he said bankruptcy isn’t inevitable. He said last week that Treasury had not yet given new cost- cutting guidelines.
“It would only be prudent” to be prepared for all contingencies, Henderson added on NBC, so “we can move fast.”
Henderson was named to replace Rick Wagoner after he stepped down as CEO at the request of the Obama administration and director Kent Kresa took on Wagoner’s chairman role. Kresa, who described this weekend’s meeting as “extensive,” is working to replace a majority of GM’s board before an August annual meeting as part of the changes the U.S. government wants.
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