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GM bankruptcy likely, CEO says

Still a chance for the auto maker to restructure outside of Chapter 11 protection, but 'the task that we have in front of us is large'


KEVIN KROLICKI AND SOYOUNG KIM

Monday, May 11, 2009

DETROIT — General Motors Corp. is open to considering moving its headquarters from Detroit, selling U.S. plants and renegotiating its restructuring plan with its major union as it heads toward probable bankruptcy, the automaker's chief executive said Monday.

CEO Fritz Henderson said it was more likely that GM was headed for bankruptcy by June 1 – the U.S. government-imposed deadline for the auto maker to restructure or face bankruptcy.

“It's more probable that we would need to accomplish our goals in a bankruptcy,” Mr. Henderson said on a conference call with reporters. “There's still a chance for it to be done outside a court proceeding.”

A move by GM to leave Detroit would represent another blow for the economy of a region already reeling from the bankruptcy of Chrysler LLC and the sharp downturn in auto manufacturing.

GM purchased its glass-towered headquarters building, known as Detroit's Renaissance Center, last year for $625-million. The 100-year-old auto maker has been based there since 1996.

“As we look at the structure, look at the business, we're looking at everything, particularly as we slim down,” Mr. Henderson said. “At this point, I don't have anything to report. We don't have any such plans, but if we did it would be motivated by business rationale, which would be cost-efficiency and speed.

GM needs to reach deals that would slash debt owed to bondholders and the United Auto Workers union and to win concessions from the union that would cut operating costs for its remaining U.S. plants by the end of this month under terms set by the Obama administration's autos task force.

It has already told bondholders that it would miss a $1-billion June 1 debt payment.

The auto maker has also restarted talks with the Canadian Auto Workers union just after that union agreed to a set of sweeping concessions to keep Chrysler from liquidation.

The UAW, which is crucial to GM's turnaround plans since it is also a major creditor, has raised strong objections to GM's plans to increase vehicle imports from plants in Mexico and Korea, saying that runs against the job-saving intent of the U.S. government's support for the auto maker.

GM's current restructuring plan, which is supported by the U.S. autos task force headed by former investment banker Steve Rattner, would cut about 21,000 more U.S. factory jobs.
But Mr. Henderson said GM was ready to negotiate everything with the UAW in talks now under way.

Mr. Henderson said GM, which is trying to sell its European operations including Opel and Saab as well as the Hummer and Saturn brands, would be open to investor proposals to take over individual U.S. factories if those emerged.

But he said GM management could not change the terms of a debt-for-equity exchange on offer to the thousands of GM investors who hold about $27-billion of its bond debt.

That offer would give bondholders just 10 per cent of the company, while the UAW would get 39 per cent in exchange for about $10-billion it is owed.

GM bonds were slightly lower in light trading on Monday. GM's 7.2 per cent notes due in 2011 fell less than a cent, to 6 cents on the dollar, according to MarketAxess data. GM's 8.1 per cent notes due in 2024 fell slightly, to 5.5 cents.

That more-favourable payout ratio for the union reflects the White House's focus on protecting the interests of the UAW over other creditors, an approach that had also threatened to complicate the Chrysler bankruptcy.

Henderson said the task force had made it clear that bondholders could not be given more than a 10 per cent stake in a restructured GM. “They didn't support us going above 10 per cent,” he said.
A committee representing GM bondholders has asked for a majority stake and maintains that the GM offer would have to be “materially improved” to win support, a person familiar with the committee's strategy said.

Restructuring experts and bankruptcy lawyers see little chance that GM can win bondholder support and expect the government to push a fast-track sale of its best assets in bankruptcy similar to what is happening at Chrysler.

GM plans to notify dealers later this week of plans to force showroom closures, Mr. Henderson said. The process of closing dealerships and taking back inventories of parts and other related work could take the remainder of the year, he said.

The auto maker is looking to cut 40 per cent of its roughly 6,200 U.S. dealerships by the end of next year, an element of its turnaround plan that has come under fire from the lobbyists for the dealers who say it will cost GM sales.

The auto maker has warned shareholders that they might not expect to recover anything in a bankruptcy and has submitted a plan with securities regulators to issue 60 billion new shares to pay off creditors.

That rush of new share issuance would reduce the value of existing stock to less than 2 cents per share.

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