GM Again Says Bankruptcy Is Not Its Preferred Course
Saturday, March 7, 2009
General Motors reaffirmed its desire to steer clear of bankruptcy yesterday, insisting that an out-of-court restructuring is the best road for the company and its stakeholders.
The Detroit auto giant had outlined three potential bankruptcy scenarios, which included a pre-packaged agreement, in its viability plan submitted last month to the Treasury Department.
"However, the company firmly believes an in-court restructuring would carry with it tremendous costs and risks, the most significant being a dramatic deterioration of revenue due to lost sales," GM said in a statement.
GM said it was responding to a Wall Street Journal report that executives were more open to a government-financed Chapter 11 filing. GM shares plummeted to a 75-year low yesterday, closing down 22 percent, to $1.45 a share. The report came on the heels of an opinion by GM's auditor that there is "substantial doubt" the automaker can continue to operate on its own.
In Washington, President Obama's auto task force concluded a busy week of meetings with a briefing that included Treasury Secretary Timothy F. Geithner, National Economic Council Director Lawrence H. Summers and other cabinet-level officers. Earlier in the week, members of the task force, led by advisers Steven Rattner and Ron Bloom, met with the National Automobile Dealers Association, the National Association of Minority Auto Dealers, Michigan Gov. Jennifer M. Granholm (D), advisers to the GM bondholder committee, and Fiat executives, who have proposed an alliance with Chrysler.
Rattner and Bloom are scheduled to travel to Detroit Monday to meet with more stakeholders. GM and Chrysler are seeking an additional $21.6 billion in loans to weather the economic downturn.
"We need a strengthened, retooled and restructured and re-imagined auto industry in this country," White House press secretary Robert Gibbs told reporters on Air Force One. "Whether the auto industry as we have it now is exactly what we have in a year is something I think is going to be determined by a lot of different factors."
Meanwhile the auto industry's health continues to deteriorate. U.S. auto sales dropped 41.4 percent in February compared with the same month last year. Forecasts looked increasingly grim that sales might bounce back in the second half of this year.
To better weather the sales slump, Ford announced plans Wednesday to eliminate up to $10.4 billion of its debt by offering cash and stock to its creditors.
Overseas, GM is battling to keep its foreign subsidiaries alive. The company's German Adam Opel unit said yesterday it would lay out its restructuring plan to the German government in hopes of obtaining financial aid.
Unable to get funds from the Swedish government, GM was forced to place Saab into bankruptcy protection.
GM aims to avoid a similar bankruptcy situation in the United States. Reports that executives think otherwise are untrue, said GM's top spokesman Steve Harris in a statement online.
"That's the deal, folks," Harris wrote on the company blog yesterday. "We haven't changed our thinking. You analyze every option, but you move ahead with the one you think is best for the company. That's what we're doing."