Bankruptcy Still Off Table for GM
General Motors Corp. is resisting suggestions from advisers that it make preparations for a bankruptcy filing, despite telling Congress this week it could soon run out of cash, according to people familiar with the matter.
The company's view is that consumers won't buy cars from a bankrupt auto maker. GM is concerned that if it were even to take steps in that direction, such as hiring bankruptcy counsel, the move would leak and unnerve potential GM customers.
The company's position is complicating a high-stakes faceoff on Capitol Hill over the future of the U.S. auto companies. Detroit's Big Three came to Washington this week to lobby for a bailout and ran headlong into the confusing political landscape of a lame-duck Congress and a presidential transition.
Congressional Democrats and President-elect Barack Obama favor carving $25 billion for the auto makers out of the government's $700 billion fund to stabilize financial markets. Many Republicans and the White House have resisted that proposal. Instead, they favor loosening controls over $25 billion in already approved loans -- meant to help the industry retool -- to aid the industry in the current crisis.
The companies themselves, meanwhile, are showing little interest in the aggressive changes that critics insist are needed to reverse the industry's long-term decline.
Because of its refusal to consider bankruptcy, GM is 'courting a Lehman-like situation,' said a person familiar with the matter. Lehman Brothers, the storied investment bank, collapsed into a court-protected reorganization unprepared to remain in business. 'They are on the train tracks and won't get off them,' the person said.
A failure to gain support in Washington would be a major setback for all three companies and could force GM to consider filing for bankruptcy protection, a move that would ripple through the economy.
GM's board has continued to support Chief Executive Rick Wagoner, despite big losses over the past three years, in part because he was able to negotiate big labor and health-care cost cuts with its unions. A bankruptcy filing might undermine his position, a person familiar with the matter said.
The board hasn't changed its support for the CEO, said GM spokesman Tony Cervone.
The Washington impasse deepened Wednesday as congressional allies scrambled for a last-ditch compromise. Sens. Christopher 'Kit' Bond (R., Mo.) and George Voinovich (R., Ohio), began work on a plan to speed release of $25 billion in already approved loans intended to help the industry meet higher fuel-economy standards. The loans instead could be used by the companies 'to make ends meet,' according to one individual briefed on the legislation.
The strategy dovetails with the approach favored by the Bush White House. Some Democrats, such as Michigan Sen. Carl Levin, suggested they would be willing to consider it.
But the idea is strongly opposed by more senior Democrats, who are pushing a competing plan that would carve $25 billion for the industry out of the $700 billion fund to stabilize financial markets.
For the second straight day, the leaders of GM, Ford Motor Co. and Chrysler LLC, together with the president of the United Auto Workers union, appeared on Capitol Hill to appeal for a $25 billion loan package. The GM and Chrysler executives said they could run out of funds without government support.
'We don't like being here asking for this,' GM chief executive Rick Wagoner told members of the House Financial Services Committee.
The CEOs admitted the companies made missteps, but insisted their current position was a result of the financial meltdown. 'We have run out of capital,' Mr. Wagoner said. 'It can be traced right to the crisis on Wall Street.'
Mr. Wagoner said GM studied the possibility of a bankruptcy filing but concluded it would likely force GM to 'liquidate the company because you wouldn't have any revenue.' As a result, he added, GM has 'concluded it should put virtually all effort into avoiding' bankruptcy and hasn't worked out a detailed contingency plan.
In a similar vein, Ford CEO Alan Mulally said Ford studied a bankruptcy scenario and believes 'it is not a viable' option.
Chrysler LLC has worked out at least some contingency plans in case it has to file for bankruptcy protection. Chrysler Chief Executive Robert Nardelli said the company has 'looked at all aspects' of a potential bankruptcy filing and has 'gone through advisors to help us think this through.' |
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