By Don Miller
General Motors Corp. (GM) will meet with the U.S. Treasury department's automotive task force as soon as this week to work on a plan to return the automaker to viability. But while company executives assert that bankruptcy is far from inevitable GM is accelerating preparations for a court filing.
In its Feb. 17 presentation to the Treasury, GM proposed shrinking its debt 40% from $62 billion to $33.5 billion by modifying obligations to a union-retiree health fund, shedding 47,000 jobs, and persuading bondholders to accept less in an equity swap.
Now that the Treasury has rejected those proposals as too little too late, GM must find a way to come up with new cost-cutting efforts by slashing the debt even further and cutting more jobs in 2009.
The company will collect input from board meetings and the Treasury's auto task force to create a framework for new discussions this week, sources familiar with the plans told Bloomberg News.
One measure of the company's future performance which might be acceptable to the government would be to trim expenses so it can break even when U.S. vehicle sales are as low as 10 million to 10.5 million units, John F. Smith, GM's group vice president for product planning told reporters last week.
The automaker had previously stated an industry-wide rate of 11.5 million to 12 million cars and light trucks as its break-even target. By comparison, March deliveries declined for the 17th consecutive month to an annual rate of 9.86 million vehicles.
GM announced recently it would save about $1.1 billion when 7,000 union workers retire early or take buyouts this year and a new UAW agreement kicks in that cuts benefits and streamlines factory work rules.
The U.S. auto industry has cut 400,000 jobs over the past year and lost billions of dollars. After receiving $13.4 billion last year, GM has requested an additional $16 billion from the government to keep operating. Chrysler LLC has also asked for a new round of funding.
Appearing on NBC News' "Meet the Press,' Chief Executive Officer Fritz Henderson denied that bankruptcy was inevitable, but said the company was speeding up preparations for a possible court filing in case it is unable to meet the government's requirements.
"Our preference is to do it outside of a bankruptcy process, but it would only be prudent to make sure that we're planning for if we need to resort to that, that we can move and we can move fast,' said Henderson
Under the terms of a court-supervised bankruptcy, GM would form a new company focused on its best assets, Bloomberg reported, citing people who asked not to be named because the details of GM's preparations aren't public.
That process might include a so-called 363 sale, a reference to a section of the Chapter 11 bankruptcy code that could create a new company from the assets and brands of GM, increasing the company's survival chances.
But that's not likely to help assuage bankruptcy fears in Michigan, where GM and the other big automakers have their headquarters and most significant operations.
There is "tremendous pain in our state" because of layoffs and financial losses in the auto industry, Senator Debbie Stabenow (D-MI) told Reuters.
"I do not support bankruptcy as the first, second or third option," Stabenow said, adding that bankruptcy could shift pensions for GM retirees to the federal government.
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