Sunday May 31, 11:09 PM
GM set for bankruptcy as Treasury readies rescue plan
By Patrick Baert
WASHINGTON (AFP) - The US Treasury Department on Sunday put final touches on a plan to restructure General Motors (NYSE: GM - news) , once the world's largest automaker and now expected to join rival Chrysler (Xetra: 710000 - news) in filing for bankruptcy protection.
Monday will be a historic day for the US automobile industry, with President Barack Obama poised to discuss General Motors' bankruptcy in remarks planned for 11:30 am (1530 GMT) Monday, after the auto giant officially files its bankruptcy paperwork, US media reported.
Meanwhile, GM's new chief executive, Fritz Henderson, has scheduled a news conference for the middle of the day in New York, where the number one US automaker would file for bankruptcy.
The developments came as creditors holding about 54 percent of General (3166.KL - news) 's Motors bonds approved a restructuring plan proposed by the US Treasury, a spokesman for the bondholders said Sunday.
The 54 percent represented 975 institutions, a spokesman for the ad hoc committee of bondholders, Elliot Sloane told AFP. Washington had warned that if the plan were rejected, creditors risked losing everything.
The US administration had given GM until June 1 to present a viable restructuring plan, in return for government aid, and the US Treasury Department had given holders of General Motors until the end of the day Saturday to respond to the rescue plan.
Agreement boosted the Treasury's plan for creating a new company shorn of labor costs and money losing assets, in a rescue that could reach 60 billion dollars as the state takes a 72.5 per cent ownership stake in the 101 year old company.
Meanwhile Canada, which has several GM factories, is also set to be digging into its pockets for the rescue plan.
Among the backers was a committee of large investors holding about 20 percent of GM's 27.2 billion dollars in outstanding bonds, The New York Times reported.
Under the plan, the bondholders would obtain the rights to buy an extra 15 percent of GM's stock at a low price. They would also control 25 percent of the new GM, after having supported the new company's creation in bankruptcy court.
Bondholders who rejected the plan could still fight it in court, but the government maintains they could end up with little or nothing if they take that path.
On Monday, New York bankruptcy judge Arthur Gonzales was set to rule on number three US automaker Chrysler, which filed for bankruptcy protection a month ago.
Under an expedited process, Gonzales was expected to approve the creation of a new Chrysler that would preserve the automaker's healthiest assets and liquidate the rest.
The new entity will be controlled by a consortium consisting of the Italian automaker Fiat (Milan: F.MI - news) , the United Auto Workers union, and the US and Canadian governments.
Fiat will have a 20 percent stake with the option to increase it to 35 percent; the UAW 55 percent; and the US and Canadian governments 10 percent.
The automakers' fate, the subject of debate on television talks shows, is being closely watched in US political and economic circles.
"This is a real sad day," said former Republican presidential contender Mitt Romney.
"I'm a son of Detroit (DETROIT.SN - news) . My dad was an auto executive. You know, I drive American cars. I love American cars. My heart bleeds for the people in Michigan and Detroit, for all these auto workers," he said on Fox News Sunday.
At the end of last year, GM had 244,000 employees around the world, about half of them in the United States.
Republican Mitch McConnell, the Senate minority leader, called the auto rescue plan "a big mistake," arguing that the government had done too much to keep GM and Chrysler out of bankruptcy.
In an interview with CNN, he held up the example of Ford, the number two US automaker, as "an American company that hasn't taken government money and is still producing automobiles."
Corporate leaders, meanwhile, urged the government not to overstay its welcome in the private sector.
"I think all of us understand the need for the government to intervene and take the actions they did," said Anne Mulcahy, chief executive of Xerox (NYSE: XRX - news) . "But I also think there's a need for an exit plan."
The possibility of bankruptcy for such an iconic American company has been viewed with great foreboding in a country where the automobile is deeply embedded in the national imagination.
"The phrase 'bankrupt General Motors,' which we expect to hear uttered on Monay, leaves Americans my age in economic shock," the writer PJ O'Rourke said in the Wall Street Journal. "The words are as melodramatic as 'Mom's nude photos.'"
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