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Bankruptcy looms as an option for GM

Crunch time: GM's new CEO Fritz Henderson ... contemplating bankruptcy.

GM’s new boss threatens bankruptcy over bonds and unions

1 Apr 2009

NEWLY installed General Motors chief executive Fritz Henderson has publicly acknowledged that going into bankruptcy might be the preferred course of action for the fallen giant.

The admission came after president Barack Obama rejected the company’s plan to achieve viability and sent it back to the drawing board, without its chairman of nine years, Rick Wagoner, who was forced to leave the post.

President Obama said sacrifices would be required from all GM’s stakeholders if the company was to be successfully restructured.

The talk about bankruptcy is a calculated threat to persuade holders of $US27 billion ($A38.8 billion) of GM bonds to accept a redemption that would involve heavy capital losses.

GM has been trying for weeks to persuade the bondholders to accept a package of items worth a total of just $US9 billion.

The bondholders have been offered eight cents in the dollar in cash, and 16 cents in the dollar in new unsecured debt and GM shares which, at current prices, would represent a 90 per cent stake in the company, diluting current shareholders to one tenth of their current share.

The unions have also been offered swags of new GM shares to replace half the $US20 billion GM has promised to put aside in a fund to cater for the GM retiree health plan.

Speaking after his appointment as CEO, Mr Henderson said he believed he could reach agreement with the bondholders and the unions before the government’s 60-day deadline for a new viability plan expired.

 center imageLeft: Hummer production at Shreveport, Louisiana.

“The objectives are clear. If we can’t do it out of court, we will do it in court,” he said in a reference to a Chapter 11 bankruptcy, which is controlled by the courts.

A bankruptcy would make all the current debts and liabilities fall away, allowing GM to proceed without all the financial baggage that has built up over the years.

The bondholders and retirees would have to join a long line of other creditors whose claims on GM would be suspended indefinitely.

Mr Henderson said that if GM did file for bankruptcy, he wanted it to emerge quickly from the court’s control.

“We could not contemplate bankruptcy if we didn’t have the government there to provide the finances and the protection,” he said.

He said he understood the message delivered by president Obama’s automotive industry taskforce: “Go deeper, go harder, go faster.” “We got it. We understand exactly what that means,” Mr Henderson said.

Meanwhile, GM and Ford have copied Hyundai’s new marketing plan in the US by offering job-loss protection schemes.

Hyundai’s original scheme allowed buyers who lost their jobs to return the car with no damage to the credit rating.

Subsequently, Hyundai extended its plan to include three monthly payments while the owner looked for another job.

Under the GM scheme, GM will offer protection for two years. If a car buyer loses his or her job in that time, GM will make up to nine monthly payments of up to $500 a month. Ford’s plan offers coverage for 12 months.

GM has also been quick to cash in on the federal government’s decision to underwrite all warranty and maintenance claims on GM and Chrysler cars.

GM yesterday extended its powertrain warranty to five years or 100,000 miles (160,000km), claiming it was the best coverage in the industry.

Read more:

GM told to cut deeper

Obama forces Wagoner to quit

GM’s Wagoner to resign

The Road to Recovery podcast series

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