GM bankruptcy seen as all but inevitable

After 100 years in business and 10 months of frenzied but failed restructuring, General Motors Corp is weeks from the bankruptcy filing experts say will be required to complete the Obama administration's bid to reshape a fallen icon of American industry.

Facing a government-imposed June 1 deadline to restructure, GM is scrambling to slash some $27 billion of bond debt, win sweeping cost concessions from the United Auto Workers union and eliminate almost 1,600 U.S. dealers.

But with the clock ticking, experts see it as all but certain GM will follow its smaller rival Chrysler into federal bankruptcy court.

"I almost think it is inevitable," independent auto industry analyst Erich Merkle said. "I don't know how they are going to escape it."

The battery of problems to have hit GM range from plunging sales and declining share to a line-up that has seen more misses than hits over the past decade and that trails engineering leaders like Toyota Motor Corp and Honda Motor Co in hybrid technology.

But GM's debt-laden balance sheet is the source of its immediate crisis and the reason restructuring experts, analysts and auto executives do not see a way forward that avoids what could be a complicated and contentious bankruptcy.

"The only way it is not inevitable is if the government accepts whatever percentage of bondholders have tried to exchange, whether it is 40 percent or 50 percent or 60 percent," said Peter Kaufman, president and head of restructuring and distressed mergers and acquisitions at the Gordian Group LLC in New York.

GM has said that it must have 90 percent of the $27 billion of bonds participate in the exchange or it will be forced to file for bankruptcy.

GM's offer to its bondholders would give them only a 10 percent equity stake in a reorganized company. Representatives of a committee representing major bondholders have called that offer unfair given the payout being offered to the UAW.

In a sign of how far apart the sides remain, bondholders have sought a majority stake in the new GM, the controlling position in a new and smaller auto company GM has offered to the U.S. Treasury.

After extending $15.4 billion to keep GM afloat since the start of the year, the U.S. Treasury would own at least 50 percent of the automaker under GM's proposed terms.

A UAW healthcare trust would hold nearly 40 percent of GM in return for allowing GM to pay $10 billion -- half of its remaining funding obligation -- in stock, instead of cash.

"Trying to get the bondholders, labor and the dealers and other constituents all onboard with an out-of-court plan is a very difficult goal," said Bob Gordon, a restructuring expert at Clark Hill PLC.

Chrysler's case, the sixth-largest U.S. corporate bankruptcy, has been watched from the start by some analysts and administration officials as a dry run for a GM case.

Chrysler, which filed for bankruptcy on April 30, has won court approval to proceed with a rapid sale of most of its assets to a new company led by Italy's Fiat SpA, paving the way for its emergence in as little as 60 days.

GM said last week that it would probably follow suit by looking for an equally quick sale of its best assets, but experts caution that its process could be harder.

"GM is a case that is much larger in scale and by virtue of its size it's more complicated on many different levels," said Scott Stuart, a partner with Donlin Recano, a claims administrator for bankruptcy cases. "It will be a more traditional reorganization."

Underscoring the divisions between GM and stakeholders, the UAW on Monday repeated its opposition to a GM restructuring plan that includes closing 16 U.S. plants.

GM's announcement last week that it planned to drop more than a quarter of its nearly 6,000 U.S. dealers has also triggered an outcry from some of those independent businesses.