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Car major inches closer to bankruptcy

(China Daily/Reuters)
Updated: 2009-04-09 07:46

General Motors Corp is in "intense" and "earnest" preparations for a possible bankruptcy filing, a source familiar with the company's plans said.

A plan to split the corporation into a "new" company made up of the most successful units, and an "old" one of its less-profitable units, is gaining momentum and is seen as the most sensible configuration, said another source familiar with the talks.

Related readings:  GM to double China sales over 5 years  GM 'edging closer' to bankruptcy  US government may elbow GM into bankruptcy  White House questions viability of GM, Chrysler

If the plan goes through, the new GM would be expected to assume some previous creditor debt from bankruptcy proceedings, such as secured debt, said the second source, adding that GM bondholders were likely to lose substantial value in bankruptcy.

Certain GM dealer and litigation claims would also be hurt if the new company structure is used as part of a company bankruptcy, said the second source.

The sources requested anonymity because they were not authorized to speak on the record. GM declined to comment.

GM, operating on $13.4 billion of government loans since the start of the year, has until June 1 to complete a reorganization plan. The government has warned that the alternative would be bankruptcy.

GM is under pressure to cut unsecured debt by two-thirds, turn half its remaining payments into a union healthcare trust in the form of equity rather than cash, and reduce hourly wages and benefits to match those paid by foreign automakers.

Chrysler, owned by Cerberus Capital Management LP, is also facing possible bankruptcy. The automaker has until April 30 to complete an alliance with Italian automaker Fiat.