General Motors’ Chief Executive was grilled by a string of lawyers on Tuesday about his company’s bid to sell its “good” parts into a new company and emerge from bankruptcy protection.
GM, whose June 1 filing for bankruptcy protection was the fourth-largest in U.S. history, is hoping to avoid a lengthy sale hearing that could drag out the process and postpone its emergence from Chapter 11. Last month, objections from a group of bondholders and others dragged out rival Chrysler LLC’s sale hearing for three days.
At a packed Manhattan courthouse Tuesday, GM CEO Fritz Henderson was questioned for around five hours by attorneys for the various parties challenging the sale, including bondholders, consumer groups and unions.
Despite U.S. Judge Robert Gerber’s urging for the attorneys to keep their arguments concise and to avoid redundancies among their questioning, the hearing dragged on as a parade of lawyers made their way up to the podium to question Henderson.
“I think people have forgot why we’re here and what we have to accomplish,” Gerber said sharply. “I’m not going to deny anybody due process, but I expect the questioning to be more focused.”
Gerber looked particularly annoyed when Henderson was questioned by an attorney from Florida who himself owned $5 million in GM bonds. The attorney spent much of his time searching for documents, at times asking opposing council to provide them, prompting Gerber to bury his head in his hands.
At the same time, Henderson wasn’t phased by his lengthy stay on the stand, answering questions quickly and directly for the most part, making eye contact with the attorneys.
When asked about the current condition of GM, Henderson testified that the automaker’s June sales were “slightly better than expected” excluding fleet sales, which he partly attributed to the company’s progress toward an exit from Chapter 11.
Under a government-backed deal, General Motors Corp. will sell most of its assets to a newly created company, 60 percent owned by the U.S. government. The Canadian government will get a 12.5 percent stake while the United Auto Workers union will take a 17.5 percent share to fund its health care obligations. Unsecured bondholders receive the remaining 10 percent.
Existing GM shareholders are expected to be wiped out.
The remaining pieces of the company, including some closed plants, will become the “Old GM” and be liquidated.
GM hopes to emerge as a leaner company, less burdened by debt and labor costs as it faces a severe recession that has sapped car and truck sales. Automakers, which are due to report June U.S. sales on Wednesday, have seen sales fall 37 percent over the first five months of the year.
Lawyers, media and other spectators, along with a handful of people who claim they were injured as a result of allegedly defective GM vehicles, gathered outside the U.S. Bankruptcy Court for the Southern District of New York hours before the hearing’s scheduled start Tuesday in a line that wrapped around the building.
Consumer groups and several individuals with product-related liability claims against the company are objecting to the sale because people with pending product-related liability claims against GM will be forced to seek compensation from “Old GM,” the collection of mostly unprofitable assets leftover from the sale where there will likely be nothing left to pay their claims.
Early on in the hearing, Mark Salzberg, an attorney for a group of bondholders, questioned why GM would opt for a sale plan instead of a restructuring plan, charging that the automaker took that route to make it harder for its creditors to negotiate with the company.
But Harvey Miller, an attorney from GM, questioned the validity of the bondholder group’s challenge, noting that it only has three members, one of which bought his bonds for just 2 cents on the dollar, while the other two spent no more than 20 cents on the dollar for theirs.
Besides the bondholders, a trio of labor unions who claim that their retirees stand to lose health care benefits are also trying to block the sale. Unlike the UAW, which brokered a deal for a stake in the company, those unions say they won’t have anything to pay for retiree health care.
Henderson testified that retiree benefits for the three unions cost GM about $26 million a month.