The once mighty US auto industry faces a day of reckoning today with the looming bankruptcy of General Motors (GM) and an expected court ruling on the sale of Chrysler to a group led by Italy’s Fiat.
Today marks a deadline imposed by the administration of US President Barack Obama for the company to submit a viable restructuring plan or file for bankruptcy. A government’s rescue plan for GM could put as much as 72.5 percent of the country’s biggest automaker under state ownership.
With the hours counting down for GM, company bondholders with slightly more than 50 percent of GM’s US$27.2 billion in bond debt voted on Saturday in support of the restructuring plan, the New York Times reported. Under the plan, the bondholders would obtain the rights to buy an extra 15 percent of GM’s stock at a low price. They would also control 25 percent of the new GM, after having supported the new company’s creation in bankruptcy court.
PHOTO: EPA
COOPERATION
Recalcitrant bondholders who opt for confrontation rather than cooperation “will get nothing or very little,” an Obama administration official told reporters on Thursday.
Meanwhile, a US bankruptcy court judge in New York was widely expected to approve a deal between Chrysler and Fiat today.
The third biggest US automaker has declared bankruptcy and is seeking a tie-up with Fiat in a plan presented as the only way to save the company from liquidation.
If presiding Judge Arthur Gonzalez rules against Chrysler, it faces a grim future, with a worst-case scenario being Fiat abandoning the tie-up and the US automaker going into liquidation, with massive job losses.
Legal appeals were expected if Gonzalez ruled in favor, meaning possible new delays. Fiat has said it might back out if the transaction is not completed by June 15.
Developments at Chrysler could provide an example for restructuring at GM, which will similarly have to sell some of its brands and close many dealerships.
But the administration official said a 60 to 90-day timeframe was “better” for GM, contrasted with the fast-track process for Chrysler, which filed for bankruptcy protection on April 30.
“This is a much more complicated company than Chrysler, as a global company. It’s three times the size,” the official said.
DEAL
The United Auto Workers (UAW) union said on Friday its members ratified a deal to allow GM to radically cut costs and its debt load, clearing the way for a quick exit from the expected bankruptcy filing.
GM also announced plans to retool an idled US plant to build small cars it had originally planned to import, and two more US assembly plants could potentially be saved.
The automaker, which normally shuts downs plants for two weeks during the summer, is planning longer-than-normal closures at a variety of facilities this summer, the Detroit Free Press reported. Some factories will be shut down for as long as nine weeks, the newspaper report said. This week, about eight out of its 15 assembly plants will be running.
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