NEW YORK (AP) - A senior member of President Barack Obama's auto
task force testified Wednesday that the U.S. government will not
continue to fund General Motors Corp.'s operations if the automaker
doesn't get approval to sell its assets to a new company within the
next 10 days.
"We have no intention to further fund this company if the sale order is not entered by July 10," Harry Wilson, one of the Treasury Department officials overseeing GM's restructuring, said while being cross-examined by an attorney for a group of GM bondholders opposing the sale.
The No. 1 U.S. automaker's government-backed plan for a quick exit from Chapter 11 hinges on the sale plan, which would allow it to leave behind many of the costs and liabilities that have made the company unprofitable in the past.
The Detroit-based automaker, whose June 1 filing for bankruptcy
protection was the fourth-largest in U.S. history, is hoping to avoid a lengthy court battle over the sale. Last month, objections from bondholders and other groups dragged out rival Chrysler LLC's hearing on its sale for three days. This is day two of the GM hearing.
Testimony in GM's case wrapped up around 1:30 EDT Wednesday and
oral arguments were expected to begin after a lunch break.
U.S. Judge Robert Gerber urged the parties involved to try and reach resolutions on as many issues as possible in order to avoid excessively lengthy arguments, but he conceded that the process
would likely carry over to Thursday.
"Given our track record I think it would take extraordinary amount of work to finish oral arguments either this afternoon or this evening," Gerber said.
The judge added that he may consider putting in place some form of time limits in order to speed the process along while still assuring that everyone involved gets a fair chance to plead their case.
Wilson testified for more than three hours on Wednesday, describing how Treasury officials came to the conclusion that the sale of the GM's assets to a new company was the best option.
He said the government decided to put in place the July 10 sale deadline, saying experts agreed that because of GM's large size and
complexity the automaker could not survive a drawn out restructuring process.
"I can't recall a knowledgeable person who thought General Motors could survive under bankruptcy," Wilson said.
If the government didn't give the automaker a funding deadline it risked funneling even more taxpayer money into GM without a guarantee of success, Wilson said.
Wilson also said that the government expects to eventually sell its 60 percent stake in the new company, and that an initial public offering of "New GM" shares would occur sometime next year.
After Auburn Hills, Mich.-based Chrysler's sale was approved by the bankruptcy court, the bondholder and consumer groups appealed the decision all the way up to the Supreme Court before it ultimately went through and Chrysler subsequently emerged from Chapter 11 as a new company.
Hundreds of parties including bondholders, unions, state officials, consumer groups and individuals have filed objections to GM's plan, threatening to hold up its sale as well.
As part of a deal brokered with the auto task force, the U.S. government will get a 60 percent stake in the new company in exchange for the billions in tax dollars it has pumped into GM over the past several months in order to keep it afloat.
The Canadian government, which has also contributed billions in aid, 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.
The sale hearing, which drew hundreds of attorneys, picketing retirees and others to a Manhattan courthouse, kicked off on Tuesday with testimony from GM President and CEO Fritz Henderson, who also cautioned that the automaker's plan could fall apart if the sale did not go through by July 10.
Testimony from Henderson and other GM restructuring officials dragged on for several hours as the many attorneys representing various objectors took their turns at the podium.
The parties trying to block the sale include groups and several individuals with product-related liability claims against the company who oppose the sale because people with pending claims against GM will be forced to seek compensation from "Old GM," where there will likely be nothing left to pay their claims.
Meanwhile, a group of three of GM's unsecured bondholders are objecting to the sale, claiming that they're entitled to more in exchange for their investments in the company.
And a trio of labor unions say that their retirees stand to lose health care benefits if the sale goes through as approved. 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.