A government-steered bankruptcy of struggling carmaker General Motors would likely not be swift or simple despite the best efforts of the United States Treasury Department, turnaround experts warn.
That’s because court-supervised bankruptcy proceedings are essentially democratic, and all stakeholders — which in GM’s case would include its union, dealers, suppliers and creditors — have the right to raise objections.
”They all have legal claims, and I don’t see where the administration can ‘force’ them to abandon those claims,” said Stephanie Brinley, an analyst with AutoPacific.
”Why agree to something GM wants if you think the law is on your side and a bankruptcy judge might decide in your favour?”
The New York Times reported on Monday that the Treasury Department was directing GM to prepare for a bankruptcy court-supervised restructuring despite the company’s public contention that it could still reorganise outside court.
The goal is to prepare for a fast ”surgical” bankruptcy, the Times said, citing unnamed people familiar with the plans.
One option under discussion is to create a new company that would buy GM’s ”good” asset and leave the less desirable assets, factories and healthcare obligations to be gradually liquidated, the report said.
”Conceptually it makes sense. But there are some serious legal issues that have to be overcome,” said Brad Coutler, an analyst with O’Keefe & Associates, which specialises in turning around distressed firms.
Objections from stakeholders have complicated the bankruptcy of GM’s former parts supplier, Delphi, which has dragged on for nearly four years and is not close to being complete.
In addition, even with government guarantees, the bankruptcy will spark anxiety among suppliers, any one of which could threaten to shut down the company, Coutler said.
”One of the first things they would have to do is get a critical vendors motion from the court so your suppliers can be paid,” he said.
The government on March 30 gave GM, which has received $13,4-billion in public aid, 60 days to come up with an aggressive restructuring plan to be eligible for further aid the company says it needs to avoid collapse.
Some analysts say creditors are pressing GM for a better deal.
”GM’s creditors seem to believe that they should get a better deal than the car company is offering them so that it can reduce its debt,” said Douglas McIntyre of 24/7 Wall Street.
”Even the most senior creditors are being asked to take a very modest portion of the face value of their loans to help the huge car company get out of financial trouble,” he said.
Creditors believe that they have the ability to stop or at least draw out a Chapter 11 bankruptcy process, McIntyre said.
”That would make a bankruptcy less attractive to the Treasury, which would simply like to get the GM matter resolved in a way that does the least to disrupt the industry, its suppliers, and its employees,” he said.
The United Auto Workers union remains opposed to the idea of bankruptcy filing by the car giant but union sources say negotiators are not being given any acceptable options.
”I don’t think they’re at all happy with the position they are in,” said one union source familiar with the negotiations.
GM declined to comment on the speculation but said it was preparing for any eventuality.
”We are taking more aggressive actions to restructure operations and reduce liabilities and debt on our balance sheet with the goal of doing this out of court,” said GM spokesperson Katie McBride.
”If we are unable to restructure out of court we are prepared to use the available legal processes to get the job done.” — Sapa-AFP