General Motors is expected later today at a key bankruptcy court hearing to present its plan to sell off most of its assets to a ‘new GM’ free of most current debts and supported by billions of dollars in US government loans.
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Judge Robert Gerber has so far ruled in GM’s favour on every motion placed before the court since the automaker sought bankruptcy protection on 1 June while Chrysler’s recent swift emergence from bankruptcy set a precedent for a speedy process, news agency AFP noted.
“We hope to launch the new company as soon as possible after the sale is approved,” GM spokeswoman Julie Gibson told AFP declining to speculate on how long it would take for the new company to emerge.
GM late last week agreed to accept liability for past product defects amid mounting political pressure so the only significant remaining objection is from a group of dealers the carmaker plans to axe from its network.
GM – and Chrysler which recently abruptly axed hundred of its dealers – have both said the current tally of new vehicle sales per dealership is far lower than those of rival foreign brands’ outlets and argued that the remaining shops would be more viable as a result of the closures because per-dealer volume should increase.
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By GlobalDataJohn Pottow, a bankruptcy law specialist at the University of Michigan Law School, told AFP GM was expected to reach a deal with the bulk of the dealers and the remaining objections would probably be dismissed by the judge.
“The hearing won’t take more than a day or two,” Pottow speculated. “Then, the judge will decide whether selling the assets (to a new company) is in the best interest of creditors and he’s going to say yes.”
Once the judge approved the asset sale, it would take several days or possibly a few weeks to be completed, Pottow told AFP.
The company was able to move through the process swiftly because it spent months preparing for the bankruptcy process and reaching agreements with its main union and most of its creditors, AFP noted.
But the aid and influence of President Barack Obama’s administration could not be underestimated, Pottow said. “It’s amazing what you can do when you have a government funded and staffed task force,” he added.
GM gained approval last Thursday to draw on the second half of US$30bn in government financing, keeping the rapid restructuring plan on track.
The funds, from the US and Canadian governments, would allow it to pay its employees and suppliers and other expenses under the exit plan, AFP said.
The US government would own 60.8% of the capital for its contribution under the plan, Canada would have 11.7% and a United Auto Workers healthcare trust fund would hold 17.5%.
Creditors holding GM bonds would swap $27.1bn of debt for a 10% stake and warrants allowing them to buy an additional 15% stake, officials said.
Sources familiar with the case told AFP GM appeared to be on track for an exit from bankruptcy protection under the new scheme as early as mid-July.
Officials also were quoted as saying Obama’s administration had no intention of nationalising General Motors long term and also would not be participating in its day-to-day operations.
GM’s key challenge would be to change its corporate culture to take advantage of its leaner, more focused and potentially more profitable structure, AFP added.
