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GM Chief Calls Bankruptcy 'More Probable'

Deealers wait to learn if they'll be scrapped

By Mark Huffman
ConsumerAffairs.com

May 11, 2009

• Canadian Auto Dealers File Class Action Against GM, Law Firm • GM Introduces Wi-Fi In Cars • GM Offers Money-Back Guarantee • GM's Newest California Showroom: eBay • GM, Chrysler Personal Injury Victims Left Stranded • 'New GM" Exits Bankruptcy • Judge Greenlights GM Bankruptcy Plan • Obama Set to Sign 'Cash for Clunkers' Bill • States Challenge GM Sale • Supreme Court Okays Sale of Chrysler to Fiat • Supreme Court Blocks Chrysler Sale • GM To Scrap Medium-Duty Trucks • Penske Hopes to Drive Saturn Off GM's Lot • New Chrysler Agrees To Honor Old Lemon Law • Consumer Groups Appeal Chrysler's Lemon Law Reprieve • Dumped GM, Chrysler Dealers Not Going Away Quietly • The Hummer Lives to Fight Another Day • GM Files for Bankruptcy; Chrysler Gets Court Approval • Chrysler Sours on Lemon Law Obligations • UAW, GM Agree On New Contract • Consumer Groups Challenge Chrysler Bankruptcy • GM Notifying 1,100 Dealers They're Being Dumped • GM, Chrysler May Close 3,000 Dealers • GM Moves Up Saturn Execution, Plans to Drop 2,600 Dealers • GM Prepares to Scrap Pontiac • U.S. Carmakers Getting More Federal Aid • GM Cuts More Jobs, Eyes China --- • Consumer Complaints about GM • Consumer Complaints about Chrysler

General Motors, the U.S.’s largest automaker, appears poised to follow Chrysler into bankruptcy. CEO Fritz Henderson, in a conference call, said bankruptcy protection is now “more probable” than previously thought.

Henderson said a GM in Chapter 11 might look a little different. The U.S. government would control at least half the 60 billion shares of a restructured company, with the United Auto Workers’ health care fund controlling about 39 percent.

Holders of unsecured debt would have a 10 percent stake with the remaining one percent controlled by existing stockholders — who would effectively be wiped out in the reorganization.

Bond holders previously insisted on getting a 58 percent stake in GM, but Henderson said the Treasury Department overruled that, setting the limit at 10 percent. With so much separating the two sides, many analysts see a GM bankruptcy as inevitable.

Unless 90 percent of the bond holders agree to accept 10 percent by May 26th, GM will file for bankruptcy on June 1. Current bond holders are carrying about $27 billion in GM debt.

Dealers await word

And it's not just bond holders and the union that GM must contend with. The carmaker wants to shed many of its dealers across the country, and bankruptcy may offer the smoothest and easiest way to accomplish that.

Henderson said last month that GM expects to reduce its U.S. dealer count from 6,246 in 2008 to 3,605 by the end of 2010, a reduction of 42 percent. He said the reduction would create "a more competitive dealer network and higher sales effectiveness in all markets."

Dealers — already dispirited by months of slumping sales and nightmarish financing problems — are now on pins and needles waiting to learn if they'll be scrapped. They may not have to wait much longer. Henderson said GM will begin notifying dealers "a bit later this week" of its plans.

Henderson said the company will try to work with dealers to achieve "an orderly wind-down." He said GM will buy back signage, specialized tools and unsold inventory.

The National Automobile Dealers Association is lobbying against the plan to eliminate thousands of dealers, claiming it will hurt GM's chances of maintaining market share while destroying millions of local jobs. Many states have laws that give dealers extensive leverage in dealing with manufacturers.

Henderson sounded resigned today to a GM bankruptcy as the best way to handle the company’s huge restructuring needs and signaled the bargaining is pretty much over.

“We don’t have any plan to make modifications at this point,” Henderson said during the conference call.

It may be that GM no longer considers bankruptcy to be the kiss of death it once did. What’s changed?

For one thing, Chrysler has already broken ground in that area. The nation’s number three car maker has already filed for Chapter 11 protection as it completes a merger with Fiat.

Also, the government has stepped in to reassure consumers that the U.S. Treasury will back new car warranties if they purchase a car from a company in bankruptcy.

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