March 31 (Bloomberg) -- General Motors Corp. faces a structured bankruptcy managed by the U.S. government if the company can’t meet a deadline to drastically reduce debt in the next 60 days.
GM Chief Executive Officer Fritz Henderson, on his second day running the largest U.S. automaker, said yesterday that a strategic bankruptcy with government backing is less risky than traditional Chapter 11 protection, though it’s still not GM’s preferred method of survival.
“I think bankruptcy is a very viable option, much better than a receivership,” said Ken Klee of Klee Tuchin Bogdanoff, a bankruptcy firm not involved with the automakers. “It needs to be treated as though it’s in the emergency room.”
Henderson takes over at the largest U.S. automaker after President Barack Obama’s auto task force on March 27 asked Rick Wagoner to resign as CEO. That request followed the group’s decision to reject GM’s plan to return to profit. Henderson, 50, was tapped to push through a new plan with bondholders, unions, dealers and others after a March 29 GM board meeting.
“We need to do more and do it faster,” Henderson said on a call with reporters yesterday.
At stake is $27.5 billion in GM debt that bondholders have been reluctant so far to exchange for equity and $20.4 billion in obligations to a union-run health care fund. It isn’t clear whether the government is using bankruptcy as a threat to hasten the exchange.
“While the company has made meaningful progress in its turnaround plan over the last few years, the progress has been far too slow, allowing the company to continue to lag behind the best-in-class competitors,” according to a task force report.
Obama said yesterday that company creditors, shareholders, workers, dealers and suppliers will be expected to make more sacrifices.
“We believe that there could be a viable business within GM if the company and its stakeholders engage in a substantially more aggressive restructuring plan,” the Obama task force report said.
White House spokesman Robert Gibbs said the administration isn’t pushing for bankruptcy and there’s “no pre-determined deal.”
“If that was the case we would have done that today,” Gibbs said in an interview yesterday. “Where this ends up is going to be determined in the next 30 to 60 days.”