Unable to reach deals with creditors, GM is headed for bankruptcy as early as next week, according to a report.
The plan, which the Washington Post reports is being backed by the Obama Administration, would pump another $30 billion of taxpayer funds into the troubled automaker and leave it a much smaller company half owned by the government.
Bankruptcy would allow GM to restructure debt and labor contracts. Chrysler took the step recently and is now ready to emerge as soon as next week. But suppliers of GM, which employ hundreds of thousands of workers, fear that bankruptcy could further erode sales.
The $30 billion in new federal loans would be on top of $15 billion the company has already received. The government would take at least 50% of the restructured company, and likely would take the right to name members to its board of directors, as it has at Chrysler, where the government will control four of nine seats.
The United Auto Workers retiree health fund is set to own as much as 39% of the restructured GM, in exchange for giving up its claim to at least $10 billion that the company owes it, the Post reported. Yesterday, the union announced that it reached an agreement with GM that will reduce the company's labor costs.
Labor costs and massive debt have left Chrysler and GM have unable to compete against rivals from Japan and Korea, industry analysts say. In addition to labor contracts and retiree liabilities, GM's bondholders are carrying $27 billion worth of debt. To ease the burdens, the Obama administration has been negotiating with the union, dealers and creditors in hopes of cutting costs without the carmakers having to resort to bankruptcy court. But bondholders balked at the administration-backed offer of a 10% stake in the company in return for giving up their claims.
Last month, the administration concluded that the only way to free Chrysler of its debt was to file for Chapter 11, and it is now nearing a similar decision with GM.