Options narrow for GM, Chrysler

With the failed Senate vote, bankruptcy now possible outcome for automakers.

Robert Snell and Manny Lopez / The Detroit News

What happens next for General Motors Corp. and Chrysler LLC is not clear after the Senate voted against a $14 billion bailout for the domestic auto industry.

The specter of bankruptcy has been realized, but the Treasury Department could also still step in and provide money through the Troubled Asset Relief Program, or TARP, the $700 billion fund the government set up for the Wall Street bailout.

Both companies have said they will run out of money within weeks and have retained bankruptcy advisers to assess their options. GM and Chrysler were seeking emergency aid to help them stay in business for the remainder of this year and into early next year.

"We are deeply disappointed that agreement could not be reached tonight in the Senate despite the best bipartisan efforts," GM spokesman Greg Martin said. "We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis."

Chrysler had a similar reaction.

"Chrysler LLC is obviously disappointed in what transpired in the Senate and will continue to pursue a workable solution to help ensure the future viability of the company," spokeswoman Lori McTavish said.

Ford Motor Co. was not seeking aid but had supported its crosstown rivals in their bid because the failure of any one company could affect all three, Ford CEO Alan Mulally said during congressional testimony. "I think we'll be looking to see what comes next," Ford spokesman Mike Moran said late Thursday night.

GM said earlier Thursday that it was preparing for all options and did not deny a report that it had hired bankruptcy advisers. Chrysler and many suppliers have done the same.

"The Board is meeting frequently and is monitoring the situation closely and is considering all options, as is management," GM spokesman Steve Harris told The Detroit News. "And they have engaged appropriate advisers for all contingencies."

That follows a similar admission from GM CEO Rick Wagoner during two days of hearings before Congress last week.

The hiring of bankruptcy advisers by GM, first reported in the Wall Street Journal, makes clear the severity of GM's financial situation. The Detroit automaker has lost more than $73 billion in the last four years despite several restructurings. GM, like all automakers, is operating in one of the worst auto markets in 26 years and one that has little sign of rebounding anytime soon.

GM Chief Operating Officer Fritz Henderson has said the automaker cannot continue to fund its operations unless it receives $4 billion this month in federal aid.

The Journal reported that GM has recently hired Harvey Miller of the New York law firm Weil Gotshal & Manges LP to handle any bankruptcy filing. GM also has retained restructuring experts Jay Alix, Evercore Partners' William Repko, and Arthur Newman of the Blackstone Group, according to the Journal.

Former Detroit Mayor Dennis Archer had high praise for Jay Alix, who served as an adviser during Archer's first term.

"He's outstanding. One of the best," Archer told The Detroit News. "World class. As a result of his advice, we were able to balance our budget."

Chrysler hired Jones Day law firm in November to help it determine its bankruptcy options.

In an interview with the Associated Press, Vice Chairman Tom LaSorda and Chief Financial Officer Ron Kolka said some parts suppliers and other vendors have demanded cash on delivery but the company is fending them off.

Chrysler has said its cash will drop to $2.5 billion by Dec. 31, the minimum needed to meet payroll, pay suppliers and run the company. With the U.S. sales slump expected to continue, the company has little revenue coming in and must pay suppliers $7 billion every 45 days, Kolka said.

You can reach Robert Snell at (313) 222-2028.