GM bankruptcy may be near

WASHINGTON — The Obama administration is preparing to send General Motors into bankruptcy next week under a plan that would give the automaker tens of billions of dollars more in public financing as the company seeks to shrink and re-emerge as a global competitor, the Washington Post reported, quoting sources familiar with the discussions.

The move comes as the administration prepares to lift the nation's other faltering car company, Chrysler, from bankruptcy as soon as next week, industry sources said.

The shifts into and out of bankruptcy are landmarks in the Obama administration's attempt to broker a historic restructuring of the American auto industry in the space of months.

The legal tactic is viewed by some as the best means of reviving the companies. But the speed of the government-led transformation has triggered complaints that the rights of investors and dealers are being trampled. Meanwhile, fears that a bankruptcy could lead to cascading business failures are spreading throughout GM's vast chain of suppliers.

Under the draft bankruptcy plan, GM would receive just short of $30 billion in additional U.S. loans, a source said, on the condition of anonymity.

The figure is a starting point in negotiations between the government and the company, the source said, and could change. A cash injection that large would boost the U.S. investment in GM to nearly $45 billion.

The government has indicated it planned to take at least 50 percent of the restructured company and likely would take the right to name members to its board of directors, as it has at Chrysler, where the government will control four of nine seats.

The United Auto Workers retiree health fund is set to own as much as 39 percent of the restructured GM, in exchange for giving up its claim to $10 billion that the company owes it. Thursday, the union announced that it reached an agreement with GM that will reduce the company's labor costs.

Still unknown is what part the Canadian government might play in the GM restructuring. GM operates several plants north of the border. Canada agreed to invest about $3.5 billion in the Chrysler restructuring and control one of the board seats. It is poised to make a similar investment in GM but seeks assurances that the country's share of GM production will remain the same.

GM bankruptcy may be near 05/21/09 [Last modified: Thursday, May 21, 2009 10:23pm]

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