As the 17 February deadline for the submission of viability plans to the US government looms large, GM is reportedly considering bankruptcy as an option as negotiations with the UAW and other creditors stall.

While negotiations at Chrysler are reportedly progressing well, GM is said to have reached an impasse with both the UAW and bondholders over the idea of accepting equity in exchange for debt and cash, as required by the terms of last year’s emergency loans.

As a result of the breakdown in negotiations, The Wall Street Journal reports that GM is preparing two viability plans to present to the government tomorrow.

The first will request additional money for a continued bailout and restructuring, reportedly laying out what would be needed to continue along the path currently being followed.

The other, however, will reportedly present the case for GM’s bankruptcy, funded by the US government. Under this plan, all of GM’s viable assets and some of its brands would reportedly be gathered under a new company. Items that are considered undesirable would be sold off under bankruptcy court protection. Contracts with employees, debt-holders, and dealers would be ‘reworked’, the paper said.

Discussions have reportedly hit a snag at GM over the money owed to the union for the Voluntary Employee Benefits Association (VEBA) formed from the 2007 contract that transfers all of the company’s healthcare liabilities for hourly employees to a union-run trust fund.

The UAW is owed approximately US$20 billion from GM in the form of a cash payment to the VEBA fund, but the terms of the US$13.4-billion government loan to GM state that the union must accept half of that payment in equity, instead of cash, as well as coming up with several other concessions. The union has reportedly baulked at accepting GM stock for half of the cash it is owed as GM stock has fallen to nearly worthless levels in just the past 18 months. GM’s bondholders are reported to have acted in a similar manner after being asked to write off US$18 billion in debt from the company in exchange for stock.

Reuters reported that a deal was looking unlikely to be struck by the February 17 deadline.

David Axelrod, a senior adviser to President Obama, stressed over the weekend that concessions need to be made by all parties – workers, sherholders, creditors and managers – to secure a viable future for US auto companies. He also refused to rule out bankruptcy, saying that he would not prejudge anything and would wait and see what the automakers have to say on Tuesday.

In a research note, IHS Global Insight said that if GM cannot convince the UAW and the bondholders that they will get a better deal now than they would in the event of bankruptcy, then the latter will quickly become the company’s only option.

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