GM prepares for looming bankruptcy

News agencies in the United States are reporting the Federal Government is helping General Motors prepare for quick, "surgical" bankruptcy proceedings as early as June 1. President Barrack Obama's Auto Task Force had been in meetings with the beleaguered car company last week and there are now reports the government could take equity in the new look GM.

Bloomberg.com reports that the government, having already loaned GM US$13.4billion is considering trading the debt for equity in a bid to help the restructured GM get back on its feet as quickly as possible.

Despite repeated denials from GM and an insistence that it can reorganise without resorting to bankruptcy proceedings the action is looking increasingly likely. The company is still trying to negotiate a resolution with bondholders and the United Auto Workers union but the government has reportedly told GM officials to prepare for bankruptcy in case a solution can't be found.

Recently installed GM CEO Fritz Henderson (pictured) broke from the long-held line denying bankruptcy and told the Canadian Broadcasting Corporation: "If we need to resort to bankruptcy, we have to do it quickly."

US reports citing unnamed sources close to the situation state that the most likely scenario should bankruptcy take place is a new company immediately buying up the corporation's stronger assets -- Chevrolet, Cadillac and possibly Buick -- and restructuring in as little as two weeks using a further US$5-7billion in financing.

The rest of the company's assets would then be unified under a new company -- referred to in reports as 'Old GM' -- and include underperforming brands Pontiac, Hummer, Saturn and Saab as well as healthcare obligations and unnecessary factories. This company could take years and up to US$70 billion to be wound up.

Holden's future is unclear but circumstances suggest the Australian operation would be safe even if GM declares bankruptcy. In its submission to the US Department of Treasury when requesting federal aid GM indicated that Holden remains a viable operation because of its decision to add the Cruze small car to its local production line-up from next year.

Adding to Holden's cause is its position as a separate entity from General Motors and its 42 per cent stake in Daewoo. Given both Holden and Daewoo have established operations in territories not serviced by other GM brands they could comfortably form part of a restructured organisation.

The news caps a bad week for GM with the US Department of Energy suspending the company's application for US$10.3billion in financial aid to help build the Chevrolet Volt and its Cadillac and Opel derivatives. The news is unsurprising given the uncertainty surrounding the organisation. GM maintains it will build the petrol-electric hybrid regardless of receiving the funding or not as the car is critical to its future plans.

And if all that wasn't enough the National Highway Traffic Safety Administration announced a recall of 1.5 million GM cars last week over potential fire risks. A selection of Chevrolets, Buicks, Pontiacs and Oldsmobiles from between 1997 and 2003 make up the recall that further damages GM's brand image.