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GM's Views Shift on Bankruptcy as a Strategy

By Peter Whoriskey
Washington Post Staff Writer
Friday, April 3, 2009

DETROIT, April 2 -- The leaders of General Motors have been uncomfortable for months even mentioning the word "bankruptcy." The very idea would scare off customers, they said, and ravage car sales.

But on March 27 it became clear that the American corporate icon would have little choice.

Steven Rattner, chief of the President Obama's auto task force, instructed GM officials to give serious consideration to the tactic.

"They basically indicated it may well be that bankruptcy is the right strategy," Fritz Henderson, the company's new chief executive, said Thursday in an interview.

At the same meeting in Washington, Rattner rejected GM's business plan, called for the company's board to be reconstituted and ousted chief executive Rick Wagoner, replacing him with Henderson. But amid the drama, the idea that GM might have to file bankruptcy stood out for Henderson.

Now, among the many challenges that the company faces -- it must develop a new business plan within 60 days or lose more government support -- Henderson is devoting a significant portion of his time to reassuring the company's partners and the public that while bankruptcy is a possibility, he is working to make sure that the company would emerge stronger.

As Henderson talks with the company's many stakeholders -- its global complex of suppliers, dealers and others -- he points out that President Obama has spoken several times of his intention to help the industry.

"We're thankful for the support of President Obama -- and for the clear signal that GM will be viable, that GM will go through this and that [the government] will support the company going through this," Henderson said he has told GM's partners.

Henderson, 50, started at GM in 1984 and took over as chief executive after serving as chief operating officer and chief financial officer. A Detroit native, he is a graduate of the University of Michigan and pitched for the school's baseball team.

The Obama administration has made moves that would make it easier for the company to move into bankruptcy. The federal government has announced that it will stand behind the company's warranties, beginning this week, and provide required financing if a bankruptcy filing becomes necessary.

Some in the administration believe that bankruptcy could be beneficial for the company. Primarily, a "quick" bankruptcy could allow GM to shed as much as $47 billion in debts from its books.

GM initially resisted suggestions that it would have to file for protection. Spreadsheets and projections submitted in February suggested that bankruptcy could cost the federal government billions more in aid, particularly if the bankruptcy court process takes many months.

Moreover, it could take years for customers frightened by bankruptcy to return to the fold.

But now, Henderson said, his focus -- if bankruptcy becomes inevitable -- is making the court process as quick as possible.

He has had limited discussion with the auto task force about strategies the company could use in bankruptcy court.

"The only thing we've discussed is the appropriate means to assure a rapid one," Henderson said. "It's all about speed."

Getting through the process quickly, however, will require agreements with some of the aggrieved parties, including the union and the company's bondholders. Neither of which have has come to terms yet.

"If speed is the issue, the company will be under enormous pressure to reach a consensual plan," said Mark Bane, head of the corporate restructuring group at Ropes & Gray in New York.

The company has been struggling since December to reach an agreement with their creditors in order to meet the terms of the $13.4 billion loan issued by the Bush administration. And now the Obama administration has ordered GM to seek more concessions from the union and bondholders.

"We've had dialogue with both this week," Henderson said. Since the auto task force has come down decisively in favor of more concessions, he said, "people have been more open to having a dialogue."

In rejecting the GM viability plan this week, the administration's auto team forcefully disputed many of its underlying assumptions.

Basically, it said, the company was being too optimistic about its financial prospects.

"It was a stinging report," Henderson said.

He said he didn't think the company was being optimistic about its market share, but he wasn't going to argue.

"When I receive something like this, we're not going to debate," he said. "They're findings. The question is, 'How do we use this to drive more significant change in the company?' "

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