GM poised for bankruptcy as Treasury readies rescue plan

By AFP

July 15, 2010 Updated May 31, 2009 at 5:01 PM CDT

President Barack Obama discuss General Motor's bankruptcy in remarks planned for 11:30 am (1530 GMT) Monday, after auto giant officially files its bankruptcy paperwork, US media reported.

CNN reported Sunday that Obama will explain the rationale for the filing and his hopes that the bankruptcy filing offers the best hope for the company's turnaround.

The president's administration had given GM until June 1 to present a viable restructuring plan, in return for government aid, and the US Treasury Department had given holders of General Motors until the end of the day Saturday to respond to the plan.

The plan was approved by holders of about 54 percent of the company's bond debt according to Elliot Sloane, spokesman for an ad hoc bondholders committee.

GM's new chief executive, Fritz Henderson, also has scheduled a news conference for midday Monday in New York.

General Motors got a boost Sunday as holders of more than half its bond debt agreed to a US Treasury rescue plan that would create a new company shorn of labor costs and money losing assets.

The rescue could reach 60 billion dollars with the state taking a 72.5 per cent ownership stake in the 101 year old company. Canada, which has several GM factories, also will be digging into its pockets.

The new Treasury rescue plan would give bondholders up to 25 percent of the company. Washington had warned that if the plan were rejected, creditors risked losing everything.

Among the backers was a committee of large investors holding about 20 percent of GM's 27.2 billion dollars in outstanding bonds, 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.

Bondholders who rejected the plan could still fight it in bankruptcy court, but the government has warned they could end up with little or nothing if they take that path.

The New York bankruptcy court also is expected to rule Monday on number three US automaker Chrysler, which filed for bankruptcy protection a month ago.

Under an expedited process, judge Arthur Gonzales was expected to approve the creation of a new Chrysler, called 'New Carco,' which would preserve the automaker's healthiest assets and liquidate the rest.

The new entity will be controlled by a consortium consisting of the Italian automaker Fiat, the United Auto Workers union, and the US and Canadian governments.

Fiat will have a 20 percent stake with the option to increase it to 35 percent; the UAW 55 percent; and the US and Canadian governments 10 percent.

The automakers fate, the subject of debate on television talks shows, is being closely watched in US political and economic circles.

"This is a real sad day," said former Republican presidential contender Mitt Romney.

"I'm a son of Detroit. My dad was an auto executive. You know, I drive American cars. I love American cars. My heart bleeds for the people in Michigan and Detroit, for all these auto workers," he said on Fox News.

At the end of last year, GM had 244,000 employees around the world, about half of them in the United States.

Mitch McConnell, the senate minority leader, called the auto rescue plan "a big mistake," arguing that the government had done too much to keep GM and Chrysler out of bankruptcy.

In an interview with CNN, he held up the example of Ford, the number two US automaker, as "an American company that hasn't taken government money and is still producing automobiles."

Corporate leaders, meanwhile, urged the government not to overstay its welcome in the private sector.

"I think all of us understand the need for the government to intervene and take the actions they did," said Anne Mulcahy, chief executive of Xerox. "But I also think there's a need for an exit plan."

The possibility of bankruptcy for such an iconic American company has been viewed with great foreboding in a country where the automobile is deeply embedded in the national imagination.

"The phrase 'bankrupt General Motors,' which we expect to hear uttered on Monay, leaves Americans my age in economic shock," the writer PJ O'Rourke said in the Wall Street Journal. "The words are as melodramatic as 'Mom's nude photos.'"

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