GM Considers Chapter 11 Bankruptcy as Viability Option

Are you ready to become upset? General Motors now claims that it may have to use the bankruptcy route in order to stay in business. On Tuesday, GM and Chrysler are both scheduled to report to Congress on their progress and plans to reverse their misfortunes and turn their companies around. The reason they need to justify themselves is in order to receive the next round of government loans.

Now, the part of all this that is disturbing is knowing that GM was given 9.4 billion dollars only to go bankrupt two months later. Of course, asking a company that is losing billions of dollars every month to right the ship in sixty days is also a stretch. Maybe Congress will consider this as they review their viability plans and cut them some slack.

As a devil's advocate, let me pose this question. "Is General Motors threatening Chapter 11 bankruptcy just to force Congress's hand into giving them more money?" GM states there are two options at this point, obtain another round of loans or file bankruptcy. What do you think Congress will do? Would they dare let the once proud American icon become bankrupt? As of this writing, GM's sales have not recovered and they are still bleeding cash, which means their loan in December has not accomplished much.

From Automotive News:

General Motors, nearing a Tuesday deadline to present a viability plan to the U.S. government, is considering as one option a Chapter 11 bankruptcy filing that would create a new company, the Wall Street Journal said in its Saturday edition.

"One plan includes a Chapter 11 filing that would assemble all of GM's viable assets, including some U.S. brands and international operations, into a new company," the newspaper said. "The undesirable assets would be liquidated or sold under protection of a bankruptcy court. Contracts with bondholders, unions, dealers and suppliers would also be reworked."

Citing "people familiar with the matter," the story said that GM could also ask for additional government funds to stave off a bankruptcy filing.

GM declined to comment, the story said.

GM and Chrysler LLC face a Tuesday deadline to file restructuring plans to the government in exchange for receiving $17.4 billion in federal loans.

Automakers have struggled as U.S. auto sales have tumbled amid a recessionary economy. U.S. auto sales in January tumbled to a 27-year low.

GM has been in talks with bondholders and the UAW to get an agreement on a restructuring that would wipe out about $28 billion in debt for the auto maker, sources have told Reuters. However, it appears unlikely a deal could be reached by the Tuesday deadline, they said.

GM has already announced plans to cut 10,000 salaried workers worldwide, or 14 percent of its staff, impose pay cuts for most remaining white-collar U.S. workers and has offered buyouts to its 62,000 U.S. workers represented by the UAW.

In addition, it is trying to sell its Hummer SUV and Swedish Saab brands and is reviewing the status of its Saturn brand.