President Barack Obama believes that a prepackaged bankruptcy is the best way for ailing automaker General Motors Corp. (GM) to restructure and become a competitive player in the industry, Bloomberg reported, quoting people familiar with the matter. A quick and surgical bankruptcy now seems inevitable, the report added.
According to the report, Obama is also prepared to let Chrysler LLC, the third-largest U.S. automaker, court bankruptcy and be sold off if it cannot reach an alliance with Italy's Fiat SpA.
GM is fighting hard for survival, thanks to the global economic slump and its own follies. The company has received $13.4 billion in federal loans from the U.S. Treasury, as part of Troubled Asset Relief Program, and has sought another $16.6 billion. While receiving the aid, the company was asked to present plans of long-term viability by mid-February. The Obama Administration said Monday that the restructuring plans offered by GM and Chrysler do not go far enough to warrant additional government assistance.
Rather, the embattled automakers will be allowed a limited period of time to fundamentally restructure, Obama said and added that an organized bankruptcy could be the best option for GM and Chrysler. The president noted that the government has no interest in running GM and would instead give the company 60 days to restructure.
Sunday, Rick Wagoner stepped down as GM chairman and chief executive officer with immediate effect. Fritz Henderson, the company's president and chief operating officer, succeeded Wagoner as chief executive officer.
The new CEO, Fritz Henderson, said Tuesday that more of the automaker's plants could close as part of the company's effort to meet new, tougher requirements for government aid. This is in addition to the five plants the company said it would shut down when it submitted a restructuring plan to the government last month.
Speaking at his first news conference as CEO, Henderson also said if agreements can't be reached with the unions, bondholders and other parties, a decision on bankruptcy would be made in consolation with the Obama auto task force.
In its effort to spur sales, GM Tuesday unveiled its GM Total Confidence plan, whereby customers can get payment protection for the first 24 months of ownership. GM will provide payment protection on vehicle loans or leases of up to nine payments of $500 a month for customers who lose jobs for economic reasons. The offer is available for vehicles purchased April 1 through April 30. U.S. auto sales are at their lowest levels in at least 27 years under the pressure of tight credit and weak consumer confidence.
Meanwhile, German Chancellor Angela Merkel paid a 90-minute visit to the Opel Insignia production site, the European subsidiary of GM, in Rüsselsheim on Tuesday and reportedly gave assurances that any investor in Opel would have state support.
In March, the European unit of the automaker had delivered a plan to save Opel brand and said the confidential plan delivered to the German government would make Opel profitable by 2011. The three point public outline for Opel's survival included receiving 3.3 billion euros in credit or credit guarantees from the government.
Addressing Opel's employees on Tuesday, Merkel reportedly hinted that taking a direct stake in Opel was not a priority for the government. Survival of Opel is important as about 26,000 jobs will be at stake, if the automaker collapses.
GM closed Tuesday's regular trade at $1.94, down $0.76 or 28.15%, on 53.18 million shares. The stock added $0.08 or 4.12% in the extended trade.
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