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Experts say a Chapter 11 bankruptcy filing is all but inevitable for General Motors. To restructure itself and avoid court

General Motors

proceedings GM must convince bondholders to accept at trade of $27 billion in debt for 10 percent of its high risk GM stock. Along with that, the automaker must work out deals with the UAW, commit to factory closures, reduce the number of brands by eliminating or selling brands and force hundreds of dealers out of business; all in less than three weeks.

It has been expected for some time now that this would be the case. The long list of unpleasant financial chores to be done by the auto maker hasn’t changed since February, the tasks at hand just become more daunting as time begins to run out.

Although company executives said last week they would still prefer to restructure out of court, experts say all GM is doing now is lining up majorities of stakeholders to make its court-supervised reorganization (a euphemism for bankruptcy) move more quickly. This is evident in remarks by General Motors CEO Fritz Henderson.

“If we need to pursue bankruptcy, we will make sure that we do it in an expeditious fashion. The exact strategies I’m not getting into today, but we’ll be ready to go if that’s required,”

Bankruptcy threats may just be  a bluff to convince bondholders to take the debt for stock swap deal. This strategy didn’t work for Chrysler as a few bondholders held out, refusing to accept what came to roughly 30 cents on the dollar. Most likely GM will be dealing with some of the same bondholders that created roadblocks for  Chrysler. These bond holders constitute the biggest obstacle to avoiding bankruptcy and making the deal will not be easy. Since the government and the UAW will get more stock for debts owed then the bondholders will, they will be reluctant to make such a deal. As with Chrysler the stubborn ones decided to take their chances with bankruptcy hearings.

The president didn’t much like the hold outs in the Chrysler case. He referred to them as selfish, un-american, and said that he, “does not stand with them”. What does he expect? These companies invested billions in the auto industry and its not their money but their constituents’ money. They have an obligation to their share holders to collect as much of the debt owed them as possible. I know I would be upset if I were an investor in one of those companies that took a massive loss because GM wants to pay only pennies on the dollar.

Under Chapter 11, a company can stay in operation under the protection of the court while it sheds it’s debts and unprofitable assets to emerge in a more stable  financial position.

Yet in the event of a bankruptcy filing we the people can kiss goodbye our $15.5 billion GM has already gotten from the government. They most likely would not be forced to pay that money back. As usual the best option will be the most costly to the American people.

What’s your take on the potential Bankruptcy of GM?

Will it happen or are the blowing smoke to blind those to whom they owe money?

If they do file, is that whats best for General Motors overall?

Its a Cracked World, how do we mend it?

Tags: Auto Industry, Economy