Time is running out but GM's CEO Fritz Henderson continues searching for ways to avoid bankruptcy.
The challenges continue to mount, but General Motors CEO Fritz Henderson says he’s still hoping to find a way to keep the troubled automaker from having to declare bankruptcy, in the coming weeks.
With the company living on what’s left of a $15.4 billion federal loan, and burning through billions each month, it’s facing a June 1 deadline set by the Obama Administration to either restructure its operations – and more than $44 billion in debt – or seek protection in bankruptcy court, much like Chrysler LLC did, on April 30th.
Going into Chapter 11 here in the U.S. could force GM to take similar steps in other parts of the world, Henderson noted, during a Monday morning call with reporters. The automaker has already sought protection for its Swedish-based Saab subsidiary, and is warning that it could also see the failure of its critical operations in Europe – where it is both seeking a separate government bailout and negotiating the possible sale of an unspecified stake in General Motors Europe. But Henderson cautioned that his management team is studying the situation globally, and would take action on a “country-by-country” basis.
The subject of a GM Europe sale has been generating plenty of attention, in recent weeks, with confirmation by the Italian automaker, Fiat SpA, that it had approached General Motors and was apparently open to acquiring the European unit in its entirety. GM officials originally indicated they were looking to maintain a majority stake, but Henderson now says there is a “willingness” to consider a smaller position. Industry analysts say it would be difficult for GM to unwind entirely from GME, as the U.S. maker heavily relies on its European product development center to oversee work on future passenger car models, such as the Chevrolet Malibu.
The frantic cost-cutting efforts needed to keep GM in business mean everything is up for grabs, Henderson declared, noting that, “As we look at the structure, look at the business, we’re looking at everything particularly as we slim down.”
Among the issues reportedly under consideration would be a move of GM’s headquarters from the downtown Detroit Renaissance Center to a facility at the automaker’s Technical Center, in Warren, Michigan, a dozen miles to the north.
Henderson sidestepped, but didn’t deny that possibility, telling the journalists, it’s not like we have that queued up at the top of our list. As we look at the structure, look at the business, we’re looking at everything.”
As part of the turnaround plan already announced, GM will eliminate the Pontiac division, and close or sell off its Saab, Saturn and Hummer brands, leaving just four core divisions: Chevrolet, Buick, GMC and Cadillac. That will directly reduce the number of retail outlets it plans to operate, but still more will be cut to bring GM’s total more in line with the overall dealer count of competitors such as Toyota.
In all, the carmaker hopes to maintain just 3,605 showrooms, down 42% from the 2008 total of 6,246 – and 500 fewer dealers than GM had said it hoped to operate as recently as February 17th.
The challenge is to ensure that the cutbacks occur in a reasonable and orderly manner, said GM’s CEO. Customers’ warranty issues must be considered, and financial arrangements must be completed. So, while some stores are already being told they will get no more vehicles from the factory, Henderson added that, “It’s not a one- or two-month process. It is something that will take place over a reasonable period of time.”
One of the key issues that could force GM into bankruptcy is the lack of a resolution with debt holders, a mix of banks, hedge funds and others. The automaker originally proposed a cash settlement worth just 10% of its outstanding debt, a figure quickly rejected. A similar conflict led to Chrysler’s Chapter 11 filing, but a solution was forced by the judge late last week, and serves as a warning to GM creditors that they can expect no additional help from the courts, should the bigger automaker be forced into bankruptcy.
“We don’t have any plan to make modifications, at this point,” Henderson asserted, referring to the proposed pay-out for creditors.
Announcements regarding the sale of Saab and Hummer could come before the end of May, according to industry insiders. Henderson confirmed there are two bidders negotiating for Hummer, and several others have expressed interest in Saturn. Media speculation includes Detroit entrepreneur Roger Penske, as well as Oklahoma City-based Telesto Ventures, which would like to eventually market products made by several different automakers under the Saturn badge. Penske denied making a bid during his earnings press conference last week.
Meanwhile, another group, represented by an Ohio autoworker, Gary Marvicsin, has approach GM with a proposal to take over an unspecified number of plants currently targeted for closure. “We’re not out actively trying to market a plant per se,” Henderson noted. “But if a party were interested in that, we would be very open and encourage it.”
The likelihood of GM going into Chapter 11 is something that most industry analysts have come to expect, and even GM CEO Ray Young indicated its virtually inevitability, as TheDetroitBureau.com reported last week. Part of the problem is that the public is now steering clear of GM showrooms, in large numbers, which is compounding the company’s financial difficulties. “Once you start losing revenues, you get into a vicious cycle that you can’t get out of very easily,” observed Young.