GM Moves Closer to Bankruptcy

DETROIT (AP) - General Motors, the company that put tail fins on
a Cadillac and was once the nation's largest employer, moved to the
edge of bankruptcy Wednesday as debtholders refused a last-ditch
deal. Crosstown rival Chrysler hoped to pull off a quick exit from
Chapter 11 and prove there is hope yet for a leaner Detroit.

Investors who are owed billions of dollars by GM rebelled
against a plan to accept a sliver stake in the company in exchange
for their bonds, one of the government-imposed conditions for
restructuring out of court.

A bankruptcy filing could come within days - perhaps around
Monday, which had been the government deadline for GM to
reorganize.

Meanwhile, Chrysler began a marathon session in federal court in
New York, trying to persuade a judge to sign off on its plan to
sell most of its assets to Italian automaker Fiat. After nine hours
of testimony, the judge adjourned the hearing until Thursday
morning and said a decision may not come until Friday.

Since Chrysler entered bankruptcy protection four weeks ago, its
sales have fallen but not tanked, raising hopes that both
automakers might be able to shed debts and modify contracts under
court protection and emerge leaner, stronger and more competitive.

The U.S. government has pledged to back both companies'
warranties to reassure consumers their purchases will be protected
no matter what happens. Analysts say that seems to be helping
Chrysler, where sales during the first two weeks of May fell at
about the same rate as the whole U.S. market.

At the Jack Maxton Chevrolet dealership in the Columbus, Ohio,
suburb of Worthington, it appeared to be business as usual
Wednesday even as GM contemplated bankruptcy.

One salesman took a family on a test drive, a man put on his
glasses to take a closer look at the sticker for a new Camaro, a
car was being cleaned by the service department's automatic car
wash and the receptionist was busy routing phone calls.

Owner Jeff Mauk said President Barack Obama's pledge to back
warranties seems to have erased some of the fear for potential
buyers. As for a potential bankruptcy filing, Mauk's sentiment is
the sooner the better.

"If they are going to do it," he said, "let's do it and get
through it."

Dana Johnson, chief economist at Comerica Inc., the financial
services company, said Americans are more accustomed to the
bankruptcy process than many people think.

"Banks fail and reopen under new names and that doesn't seem to
be much of a problem," Johnson said. "It seems to happen all the
time with the airlines and they keep flying."

GM, the century-old American icon that put a V-8 engine in the
Chevrolet, was once the symbol of American industry. In 1979, it
employed 618,000 Americans, more than any other company. By early
this year that figure was just 88,000.

The U.S. government late last year began pouring billions into
both troubled automakers, fearing that their failure could push the
struggling economy into a full-blown depression.

In the years after World War II, no one would have imagined the
collapse of either, but since then there have been so many
corporate crises and economic black eyes that people have had time
to get used to it, said Robert Thompson, a Syracuse University
professor who studies American popular culture.

"It really takes optimistic thinking to think that this country
is going to ever get back to that place in its manufacturing
history," he said. "It's not just automobiles. You look at
manufacturing across the country, it's really grim."

At GM, which has received $19.4 billion in government loans and
will need billions more to get through the bankruptcy process, the
bond offer's failure kicks a leg from under its out-of-court
restructuring effort.

Together GM and Chrysler employ more than 126,000 people in the
U.S., and hundreds of thousands of others rely on the companies
working for parts suppliers, dealerships and other associated
companies.

Some feared that if either company were forced into liquidation,
parts makers would go under, too, pulling down Ford Motor Co., the
only one of the Detroit Three that hasn't taken government aid.

From the perspective of GM workers, Comerica's Johnson said they
probably don't care whether a reorganization takes place in
bankruptcy court or not, as long as the company remains viable.

GM has already announced plans to end its relationship with
about 1,100 dealers. Chrysler has a similar plan to sever ties with
about 800.

"Whether inside or outside of bankruptcy, it seems to be pretty
much getting to the same point: fewer brands, fewer jobs, fewer
models, but not something that would lead to liquidation," Johnson
said.

Under normal circumstances, bankruptcy would be the best avenue
for both GM and Chrysler to try to fix their problems, said Daniel
Mitchell, an economist at the libertarian Cato Institute in
Washington, D.C.

But politics has become key in negotiations, and Mitchell said
the Obama administration appears to be trying to appease the United
Auto Workers union with little regard to making sure the automakers
emerge leaner and more efficient.

"It's a rather sad thing because at the end of the day there's
no way GM or Chrysler come out of this as successful companies,"
he said. "You're going to wind up with basically hollow shells
that are going to slowly die."


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