GM bankruptcy risk grows

CEO says Chapter 11 'more probable,' but not preferred

Robert Snell and David Shepardson / The Detroit News

Bankruptcy is a probable but not preferred path to a new General Motors Corp. as it struggles to wrest concessions from key stakeholders and prepares to eliminate more jobs and factories.

GM President and CEO Fritz Henderson on Friday said the automaker, which needs $4.6 billion more in federal aid during the second quarter to keep operating, is pushing forward with a sweeping restructuring while also preparing for a possible bankruptcy.

"I felt several weeks ago that it would be more probable that we would need to go through a bankruptcy process," Henderson said. "That continues today. But I wouldn't be able to hazard a guess as to what the probabilities would be."

If the Detroit automaker is forced to seek court protection, Henderson said the company could enter and exit bankruptcy court quickly, assuming it has reached still elusive agreements for concessions from key stakeholders, including the United Auto Workers and bondholders.

Henderson's comments, which included an update on concession negotiations and GM's effort to sell assets, came during the first of periodic briefings with reporters in coming weeks to bring transparency to GM's restructuring.

Henderson believes GM could come out of bankruptcy quickly under certain conditions and with relatively minimal expense and disruption to its image and revenue. But one bankruptcy expert believes the automaker is too big and complex to emerge in weeks or months.

"That's ludicrous," said Doug Bernstein, head of Bloomfield Hills law firm Plunkett Cooney's banking, bankruptcy and creditors' rights practice group.

It is unrealistic, given the number of stakeholders and pleadings that would be filed, Bernstein said Friday.

He said the closest example of a major corporation taking a quick, prepackaged path through bankruptcy court is Mrs. Fields, the cookie company.

Mrs. Fields had agreements with major constituents in place before filing for bankruptcy in late August 2008. The company's reorganization plan was confirmed on Oct. 2.

Other major corporations have taken much longer and racked up billions in expenses. United Airlines needed about four years to get its bankruptcy petition confirmed and, since 2002, there have been more than 17,000 pleadings.

Another impediment to a short stay in bankruptcy court is the vast number of stakeholders who can petition the judge, including GM's 377,000 hourly retirees, Bernstein said.

In an address to employees Friday, Henderson cited the bankruptcy of investment bank Lehman Brothers, which used Section 363 of the Chapter 11 bankruptcy code to split off healthy parts of the company.

Companies bid on Lehman's securities business and other operations while its undesirable assets were left behind -- a process that took days, Henderson said.

"It can be done quickly," he told employees.

GM, which has received $13.4 billion in federal aid, also would face challenges once it emerged from bankruptcy.

"The sad truth is well over 90 percent of all companies that have a plan of reorganization confirmed fail within five years," Bernstein said.

Deeper cuts

GM is working on a restructuring plan to avoid bankruptcy that Henderson said will involve deeper cuts in a bid to convince the government to lend the automaker up to $16.6 billion more.

"There will be further reductions in manpower" and plants, he said, without elaborating.

GM expects to outline by the end of April the key elements of its plan as part of an offer to bondholders to exchange debt for equity in the company.

Henderson said negotiations with bondholders and the UAW to reduce GM's debt were moving slowly. GM owes the union money for a retiree health care fund.

Under the terms of its federal loans, GM submitted a restructuring plan to the government in February that said it would close 14 of its 47 parts and assembly plants by 2012 -- five more than previously planned. GM also said it would cut 47,000 more of its 244,000 employees worldwide.

The Obama administration rejected the plan on March 30, saying it did not outline a credible path to viability. The White House ousted GM Chairman and CEO Rick Wagoner, replacing him with Henderson, and gave the automaker until June 1 to revise its plan and secure concessions from key constituents.

On Friday, the administration acknowledged that GM must make more painful cuts.

"General Motors needs to make difficult decisions to restructure its business and emerge as a more competitive, viable company," White House spokeswoman Amy Brundage said. "President Obama is committed to standing behind this process."

Henderson confirmed the Obama auto task force was probing GM about its plan to keep four core brands, including the GMC truck brand. He reiterated that keeping Chevrolet, Cadillac, Buick and GMC is "the right strategy." Pontiac also would survive as a niche nameplate.

GM brands have suitors

The brands GM wants to shed have several suitors. Henderson said there are three potential bidders for Hummer, and he hopes to make a decision before the end of the month. GM also is entertaining offers for its Swedish Saab brand and several groups are interested in Saturn.

In a reversal, GM has opted not to sell its ACDelco business, because the automaker can't get what it believes ACDelco is worth. "We'd rather keep it and grow it," Henderson said. In October, GM said it expected to sell the profitable unit, which makes oil filters, batteries and other parts, for as much as $4 billion.

The Detroit News reported Thursday that the auto task force was preparing to lend GM another $5 billion and could announce a decision as early as next week. Henderson said that figure was "consistent" with what GM had sought but the company hadn't received any final commitments.

Henderson compared the task force's role to a private equity firm conducting "due diligence" on a potential deal. He said they were "taking the watch apart" in scrutinizing all GM operations.

rsnell@detnews.com (313) 222-2028