DETROIT – General Motors, the company that put tail fins on a Cadillac and was once the nation’s largest employer, moved to the edge of bankruptcy Wednesday after debtholders refused a last-ditch deal. Crosstown rival Chrysler hoped to pull off a quick exit from Chapter 11 and prove there is hope yet for a leaner Detroit.
Investors who are owed billions of dollars by GM rebelled against a plan to accept a sliver stake in the company in exchange for their bonds, one of the government-imposed conditions for restructuring out of court.
A bankruptcy filing could come within days – perhaps around Monday, which had been the government deadline for GM to reorganize.
The Obama administration is planting itself at the wheel of General Motors with a major ownership stake – and all that goes with it for the U.S. taxpayer. If GM does file for bankruptcy, the governments of the United States and Canada could end up with as much as 70 percent of a reconstituted GM when the court dust settles – with the biggest share by far held by the U.S. Treasury.
The government would retain significant control over the restructured General Motors under an Obama administration plan that would allow U.S. officials to directly name or influence the appointments of the vast majority of a new 13-member board that would oversee the company, sources familiar with the discussions said.
The plan calls for federal officials to directly appoint five or six members to the board after GM emerges from its expected bankruptcy, the sources said. Another six would roll over from GM’s existing board, but even these directors would reflect the government’s influence since GM is reconstituting its board under government direction.
The United Auto Workers’ health-care trust would name one director to the company board, the sources said, adding that Canada is likely to appoint a board seat as well.
Details of the shape of GM’s new board emerged Wednesday as the Obama administration continues its sweeping efforts to revive the nation’s ailing auto industry, on the same day that a U.S. bankruptcy judge began a highly anticipated hearing on the sale of Chrysler to Italian automaker Fiat. General Motors could face a similar bankruptcy filing as early as Monday, and some paperwork could be submitted this weekend.
While Obama has said he has no interest in running GM or Chrysler, into which the government has poured more than $20 billion combined, he has said officials have an interest in protecting the taxpayers’ investment. Nevertheless, federal officials are preparing to be deeply involved in the companies well after they emerge from their respective bankruptcies.
“I don’t think that we should micromanage,” Obama has said. “But I think that like any investor, the American taxpayer has a right to scrutinize what’s being proposed and make sure that their money is not just being thrown down the drain.”
Meanwhile, Chrysler began a marathon session in federal court in New York, trying to persuade a judge to sign off on its plan to sell most of its assets to Italian automaker Fiat. After nine hours of testimony, the judge adjourned the hearing until this morning and said a decision may not come until Friday.
Since Chrysler entered bankruptcy protection four weeks ago, its sales have fallen but not tanked, raising hopes that both automakers might be able to shed debts and modify contracts under court protection and emerge leaner, stronger and more competitive.
The U.S. government has pledged to back both companies’ warranties to reassure consumers their purchases will be protected no matter what happens. Analysts say that seems to be helping Chrysler, where sales during the first two weeks of May fell at about the same rate as the whole U.S. market.
At the Jack Maxton Chevrolet dealership in the Columbus, Ohio, suburb of Worthington, it appeared to be business as usual Wednesday even as GM contemplated bankruptcy.
One salesman took a family on a test drive, a man put on his glasses to take a closer look at the sticker for a new Camaro, a car was being cleaned by the service department’s automatic car wash and the receptionist was busy routing phone calls.
Owner Jeff Mauk said Obama’s pledge to back warranties seems to have erased some of the fear for potential buyers. As for a potential bankruptcy filing, Mauk’s sentiment is the sooner the better.
“If they are going to do it,” he said, “let’s do it and get through it.”
Dana Johnson, chief economist at Comerica Inc., the financial services company, said Americans are more accustomed to the bankruptcy process than many people think.
“Banks fail and reopen under new names and that doesn’t seem to be much of a problem,” Johnson said. “It seems to happen all the time with the airlines and they keep flying.”
GM, the century-old American icon that put a V-8 engine in the Chevrolet, was once the symbol of American industry. In 1979, it employed 618,000 Americans, more than any other company. By early this year that figure was just 88,000.