GM Prepares for Potential Bankruptcy

DETROIT-Late Friday, General Motors’ chief executive, Fritz Henderson, hinted at bankruptcy but said it may still be avoidable if the company can attend to the governments demands by the June 1 deadline. The automotive company is planning for both a restructure and bankruptcy, according to a report in the New York Times.

“Our preference remains to accomplish this outside of bankruptcy. We have until June 1,” said Henderson. “If we can’t accomplish it outside of bankruptcy by June 1, we would do it inside of a bankruptcy.”

GM and Chrysler have been struggling for months now. In December GM asked the federal government for $18 billion to help make the company viable again. Then in February, it adjusted the number, requesting an additional $7.5 billion worth of government aid and a $4.5 billion US secured revolver credit facility. Repayment of the $30 billion worth of loans would begin in 2012, according to plans at the time.

In February, GM announced plans to cut 47,000 additional jobs, from its current worldwide workforce of 244,000. It also planned to close 14 of its 47 plants, although which plants would be shuttered was not made public. The company announced Monday morning that it will layoff 1,600 employees this week.

The government subsequently rejected the restructure plan. GM was forced to start over again with plans. The company is still in talks with the United Automobile Workers union to get concessions.

Whether GM files for bankruptcy or undergoes a huge restructuring plan, it will impact 47 plants across the country, as well as hundreds of dealerships and related companies that provide services and parts to the auto company. Closures have already blanketed the US, with accelerated plans in place to close 1,700 dealerships by June. According to reports, Saturn dealerships have already been shuttered in 45 cities. The new restructure plan could be released as early as the end of this month.

It remains to be seen how Chrysler fairs through all of this. The company was being courted by Fiat, but last week the Italian company’s chief executive said he’d walk from the deal if labor cost reductions were not put into place by the end of the month.

Detroit is already feeling the pressure of the car companies tightening the belt. According to a GlobeSt.com report, the industrial market here at the end of Q1 had availability rate of 13.8%, a 40 basis point increase from Q4 2008 and a 140 basis point increase from the year before. This percentage is a 10-year high in the area. Availability rose in every single submarket.

To read the New York Times report, click here.