A bankruptcy filing might be the most effective way to overhaul General Motors Corp., but that doesn't mean the sweeping changes that are possible in bankruptcy court are going to be quick or easy.
GM CEO Fritz Henderson said Friday that the company still would prefer to restructure out of court as it tries to prove it can survive to repay its $13.4 billion in government loans, but he conceded that bankruptcy protection is more probable than it was in the past.
Henderson said in a conference call with reporters that GM is simultaneously restructuring out of court and planning for bankruptcy protection. The company would either file a prearranged bankruptcy in which stakeholders agree to take cuts, or use a section of the federal code that allows companies to sell off bad assets and keep good ones.
Experts say there are many reasons why the quick, "surgical" bankruptcy that GM may seek won't be as smooth or as fast as the company and U.S. government expect.
"It would be a mammoth undertaking," said Jon Groetzinger, a visiting law professor at Case Western Reserve University in Cleveland. "It has been done, not on a scale quite as big as GM."
In order for it to go quickly, GM would have to gain agreements from creditors to wipe out debts, unions to change contracts, and perhaps dealers to alter franchise agreements, experts said. There could be thousands of claims from employees, retirees, parts suppliers and others that would have to be heard by the court.
"The only way it would be speedy was if they had all the agreements in advance. But then why would you need it?" asked Doug Bernstein, a lawyer with Plunkett Cooney PC in Bloomfield Hills, Michigan.
It's overly optimistic to think GM can go in and out of bankruptcy for a "quick rinse" of its troubles in as little as two weeks to four months, according to Bernstein. The process, he said, could drag on because creditors could object to contract changes and be heard in court. Experts say six months would be considered quick.
Key to emerging quickly would be advance deals with the United Auto Workers union and holders of roughly $28 billion in GM bond debt. Bondholders are being asked to take stock for part of their debt, while the union is negotiating to accept stock for roughly $20 billion in payments GM must make to a trust that will take over retiree health care costs next year.
Henderson said there has been dialogue but no intense talks with a bondholders' committee. Negotiations with the union have taken a back seat to talks at Chrysler LLC, which faces an April 30 deadline to finish restructuring and forge an alliance with Italy's Fiat Group SpA. GM's deadline to give the government completed restructuring plans is June 1.
Government not pressuring
The decision to file for bankruptcy would be made with the Treasury Department's autos task force and GM's board, and the government is not pressuring GM to file, Henderson said.
"I felt several weeks ago that it would be more probable that we would need to go through a bankruptcy process," he said. "That continues today. But I wouldn't be able to hazard a guess as to what the probabilities would be."
Henderson mentioned Section 363 of the bankruptcy code, in which companies under court supervision auction off bad assets while keeping good ones.
"The first thing a company will do when they go into bankruptcy is figure out what their bum assets are," Groetzinger said. "It's a way of shedding the nonproductive or less-productive assets."
But such auctions need time for the company to line up bidders, and creditors may object to the terms, he said. GM's good assets also could be auctioned, he said.
Even if GM gets deals outside of bankruptcy to exchange debt for equity, slash benefits, or close showrooms, not every bondholder, retiree or dealer will agree, said Steve Mertz, a partner with the Faegre & Benson law firm in Minneapolis.
"At the end of the end of the day you're going to have to use the bankruptcy process to implement whatever agreements they negotiated outside of bankruptcy," he said.
Regardless of how GM is restructured, the automaker will need more government aid in the second quarter, Henderson said, although further loans haven't been approved. The company said in February that it would need $4.6 billion in the quarter, and that hasn't changed, he said.
Meanwhile, GM is finding ways to make deeper cuts than its Feb. 17 viability plan outlined. Henderson emphasized that more factories will be shuttered beyond the five closures GM announced in February. The factories have not been identified.
More job losses
More employees will lose their jobs this year than the 47,000 the company had planned to lay off two months ago.
GM is also working to slash its portfolio of eight brands.
Henderson expects final bids from three potential Hummer buyers by next week, with a decision expected by the end of April. He said several parties are interested in GM's troubled Saab unit. GM revealed this week that a number of groups have proposed to take over Saturn.
More than six parties are interested in buying a stake in GM's Opel unit in Germany, and Henderson said he expects work to be done in the next two to three weeks.
But despite reports that GM is under pressure to get even smaller, Henderson emphasized that the company's plan calls for the automaker to keep four core brands — Chevrolet, Cadillac, GMC and Buick. He said GMC and Buick are highly profitable.
Henderson also said the company will not sell its ACDelco parts division, despite having potential buyers.
"It's a highly profitable business for us. It's creating good, strong cash flow," Henderson said. "Our conclusion was that we weren't going to get the value for the business."
Henderson also said the company's April sales were "Oklahoma," but he did not elaborate.
GM shares fell 8 cents, or 4.1 percent, to $1.86 Friday.