The end of the General Motors saga may be nearing. After months of bailouts and pleas for more money, the U.S. government ruled that GM's recovery plan was unacceptable. They ordered GM to reorganize, removing CEO Rick Wagoner, a veteran of 30 years at GM and 8 years as CEO, as the first step.
However, according to a new report the government has now reached a decision that GM's debt may be too heavy for it to reorganize outside of a bankruptcy. The New York Times reports that the U.S. Treasury Department has ordered GM to prepare a bankruptcy filing, despite GM's continued public claims that reorganization without bankruptcy is possible.
Currently, GM is on life support -- emergency bailout loans -- to support its reorganization. The government is managing GM's efforts to cut costs and reduce its debts carefully. President Barack Obama's auto task force has given GM 60 days to complete the restructuring. However, according to the report, the feds have decided on a "surgical" bankruptcy, in addition, to try to revive GM.
The key to whether GM will be forced to submit to bankruptcy will be whether the company and the United Autoworkers Union can reach a settlement with bondholders to exchange roughly $28 billion in debt into equity.
According to the recent Times report, one plan currently being considered is to take the "good" brands and assets of GM and sell them to a new company, while leaving the rest -- unwanted brands, factories and health care obligations -- to bankruptcy and liquidation over the next several years.
One plan being examined could see GM entering and leaving bankruptcy in as little as 2 weeks, with approximately $5B to $7B USD in federal funding. GM and Treasury Department officials declined comment, and the source of the report declined to be identified as they were not authorized to discuss the proceedings.
In other GM-related news, the company's woes may have a serious impact on the upcoming Chevy Volt. The company is having trouble getting federal funding for the promising upcoming electric vehicle. The Obama administration has refused to give the company the over $10.3B USD in U.S. Energy Department loans for development of fuel-efficient vehicles it has applied for until it deems the company viable.
A lot of the requested money was set to go towards enhancing and refining the Volt's powertrain platform. GM is seeking $2.6B USD for the development of two Volt derivatives, a third hybrid model, and components for the platform.
Bruce Harrison, an IHS Global Insight analyst warns that delays in funding could be catastrophic for the fledgling project. He states, "Any lack of funding they were counting on is likely to be very serious for the projects it’s connected to. The company is fighting for its life and needs every dollar it can get."
GM continues to say that with or without federal funding, the company will release the Volt next year. States GM spokesman David Darovitz, "The Volt continues to be one of our highest priorities among all GM’s future product programs and remains on track for a November 2010 launch -- with or without a Sec. 136 award."
However, in order to accomplish this, GM may transfer funds from its more viable brands, which analysts warn could put the company in worse shape. States Rob Kleinbaum, managing director of RAK & Co., a consulting firm in Ann Arbor, Mich., "That would be a mistake. The Volt won’t be commercially successful for quite some time. By robbing Peter to pay Paul, they’d be undermining their bottom line."