General Motors’ chief executive Fritz Henderson has told a US bankruptcy court the sale of GM’s main assets to a government-backed ‘new GM’ must win its approval for the automaker to survive.
If the sale was not approved by 10 July and GM lost access to government funding, the company would be forced to liquidate, he said on the first day of a hearing at which the automaker was seeking court approval for the sale just 30 days after filing for Chapter 11 bankruptcy protection.
“Business is doing better”, Henderson said, according to a Reuters report, because customers, suppliers, workers and others anticipate the completion of a successful deal. He also said the automaker had originally hoped to repay its loans to the government and restructure outside of bankruptcy.
Under questioning, Henderson said though June sales were not as bad as expected, they were still down. “We do not expect to make money in June of 2009,” he said.
One reason business was better was the success of Chrysler’s asset sale out of bankruptcy, Henderson told the court.
“The [bankruptcy code section] 363 transaction with Chrysler did go relatively quickly. It provided some buyers assurance that this can go relatively quickly,” he said.
Chrysler filed for bankruptcy on 30 April and completed the sale of its main assets a few weeks ago.
Henderson also said his predecessor Rick Wagoner had said he had been asked to step down by Obama administration’s autos task force head Steve Rattner.
The GM sale hearing, before judge Robert Gerber, was expected to continue for at least two days [into Thursday], Reuters noted, as the company faced objections and questions from its creditors committee, a group of dissenting bondholders, those with liability and asbestos claims against the company, plus unions and dealerships.
Like Chrysler, GM is axing dealerships, arguing fewer outlets will sell more cars and be more viable. Unlike Chrysler, it is giving its retailers longer notice.
If the deal is approved, the report added, GM would be able to sell its best assets, including the famed Chevrolet and Cadillac brands, under section 363 to a ‘new GM’ and the US Treasury would provide billions of dollars in financing.
Financial firm Evercore’s managing director Stephen Worth told the court his firm valued ‘new GM’ at US$38bn to $48bn in an analysis prepared for GM directors, substantially larger than the circa-$18.3bn market capitalisation of Ford.
According to Reuters, GM’s old assets would remain in bankruptcy court to be liquidated. The court also heard testimony about if ‘old GM’ would have enough cash to cover retained liabilities such as $530m in environmental claims.
Albert Koch, an AlixPartners executive who will be CEO of ‘old GM’ estimated the company needed $1.25bn and did not expect to present a liquidation plan until early 2010.
About 75 IEU-CWA union-affiliated protesters carried placards and chanted “Save our benefits” outside the Manhattan courthouse on Tuesday.
Inside, Henderson said GM currently spends $26m a month to pay benefits to members of the IEU and other so-called ‘splinter’ unions representing about 150 active employees.
IUE-CWA, the Industrial Division of the Communications Workers of America, has objected to the proposed Section 363 sale, saying it would remove the resources GM needed to pay the healthcare and other benefits promised to IUE-CWA retirees.
The union estimated its claims against GM would top $5bn, the vast majority of which were the benefits owed to retirees, Reuters added.
The US government’s $60bn financing for GM includes a proposed equity investment of $50bn that would give the US treasury a 60% stake. The United Auto Workers union would hold 17.5% stake in ‘new GM’, the Canadian government about 12% and GM bondholders are expected to get around 10%.
GM has said over half of its bondholders support the deal, but a small group mounted a challenge to the sale in court on Tuesday, Reuters noted. They have suggested that, rather than complete the sale, GM should pursue a speedy traditional reorganisation plan where creditors would be able to vote on the outcome.
Several other individual bondholders have filed objections to the sale, along with the state of Texas which contends the sale illegally challenges state laws on dealerships, and a group representing about 300 Americans with lawsuits against GM for alleged product defects.
The report noted that GM last weekend resolved a key objection from nine state attorneys general by saying ‘new GM’ would accept liability for future product defects. The company also said it would address objections raised by over 20 parts suppliers.