General Motors Corp moved closer to filing the largest bankruptcy ever for a U.S. industrial company after a crucial bond exchange proposal failed and as German officials held marathon talks to decide the fate of GM's European brand Opel.
At the same time, bankrupt U.S. automaker Chrysler faced a key court hearing expected to clear the way for Fiat SpA to take control of its best assets on the fast-track schedule set by President Barack Obama's administration.
Less than a month after it filed Chapter 11, Chrysler is seeking approval to sell its stronger operations to a New Chrysler owned by Fiat, labor unions and the U.S. and Canadian governments, in exchange for $2 billion paid to lenders.
The court hearing into the Chrysler sale is set to continue Thursday in New York.
With the Chrysler case nearing conclusion, attention was shifting to the complications expected from GM's bankruptcy -- expected within the next few days -- and the sale of Opel.
GM's board was expected to meet this week to consider the dwindling options available to the embattled automaker after a controversial attempt to restructure $27 billion in bond debt failed overnight.
The U.S. government-brokered bankruptcy for Chrysler has been seen as something of a test case for the more complex and larger filing expected from GM in the next few days.
In Europe, Fiat was also in the race to win control of Opel, part of Chief Executive Sergio Marchionne's ambitious attempt to cobble together an automotive alliance that could rank as the world's second-largest by sales behind Japan's Toyota Motor Corp.
In a meeting stretching well into Thursday morning, the German government was considering offers for Opel from Fiat, Canadian auto parts company Magna International Inc, Belgium-listed holding RHJ International SA and China's Beijing Automotive Industry Corp.
While a final winner is not expected to be selected at the meeting, Germany is working to narrow the field of bidders and complete a deal to provide Opel with temporary financing if, as expected, GM files for bankruptcy in the United States.
BOND DEAL FLOPS
Selling off its Opel business was identified as a major priority by GM as it neared the end of this month. The bond exchange was another.
GM said in a statement that an offer to exchange $27 billion in bond debt for a 10 percent stake in a reorganized company by a midnight deadline had fallen far short of the target set in consultation with the Obama administration.
GM said in a release that substantially less than the 90 percent threshold had been tendered and none of the exchange offers would be accepted.
The exchange had been seen as GM's last hope to cut debt outside the kind of bankruptcy that has been under way for Chrysler since the end of April.
Even with a ... favorable reaction from the bondholders, they were going to end up in bankruptcy, said George Magliano, forecasting director at auto industry tracking firm IHS Global Insight.
The fact that the bondholders did not take the deal makes the bankruptcy that much more difficult. That leaves one more big piece that the bankruptcy judge has to decide.
GM has been kept in operation since the start of the year with $19.4 billion in emergency federal loans as a plunge in sales overran progress it made in cost-cutting over the past four years.
About 90,000 of GM's U.S. employees were paid three days early this week, an effort to reassure them that wages would not be affected by any bankruptcy filing, a GM spokesman said.
The company also aimed to continue production during any bankruptcy, purchasing chief Bob Andersson said, and was aiming to reduce the number of its parts suppliers to about 1,100 from 1,500 over the next year and a half.
GM burned more than $10 billion in the first quarter and has lost $88 billion since 2005 as auto sales began to slow in its home market. Its financial problems deepened when the credit crisis of late 2008 shut down vehicle financing.
Under its pending restructuring, GM will be majority-owned by the U.S. government, an effective nationalization intended to save jobs and prevent a more costly liquidation.
But Maryann Keller, an independent industry analyst, said action by the Obama administration, coupled with similar support for Opel in Europe, would prevent the global auto industry from undergoing a much needed shakeout of capacity.
The major problem in this is that because of the action of government we're not going to see the strong survive and the weak dying, she said.
GM shares, which could be worthless if the automaker files for bankruptcy, fell 29 cents, or 20 percent, to $1.15 on Wednesday. The shares have traded in a 52-week range of $18.18 to $1.00.
In 2000, shortly after former CEO Rick Wagoner took over, GM shares peaked at $75. At that time, the automaker employed more than 146,000 factory workers.
Under a concessionary UAW contract workers are voting on through Thursday, GM's factory payroll could drop to near 33,000 workers.
(Additional reporting by Jui Chakravorty, Tom Hals, Christiaan Hetzner, John Crawley, Walden Siew, David Lawder, Emily Chasan and Nick Carey; Editing by Ian Geoghegan & Lincoln Feast)