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Bankruptcy looms for GM; Chrysler awaits fate
Associated Press

Marks left by the removal of a "Dodge" sign onf a closed Dodge car and truck dealer Burien, Wash.


Associated Press

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Published: 5/30/2009 11:19 PM

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DETROIT -- General Motors Corp. has pulled together many of the pieces needed to complete a government-ordered restructuring, but its board still is likely to decide Saturday to head into bankruptcy protection because there is too much left to do. Word of the board's decision, which would be made during two days of meetings, may not be known until Monday, when GM is expected to actually file for bankruptcy protection in a New York federal court. The troubled automaker made much progress last week, signing a cost-cutting deal with its main union, the United Auto Workers, and announcing it would reopen a closed plant to build the next generation of small fuel-efficient cars in the U.S., rather than in China. But its offer to bondholders to swap $27 billion in unsecured debt for 10 percent of the company's shares fell apart, and the government stepped in with a new offer that includes a Chapter 11 bankruptcy protection filing, 10 percent of the shares and the chance to buy 15 percent more. The deadline for bondholders to accept that deal is 5 p.m. (2100 GMT) Saturday, or they could get a lot less. Early Saturday in Berlin, Germany's finance minister said a plan was approved for Canadian auto parts maker Magna International Inc. to move ahead with a rescue of GM's Opel unit. GM has yet to confirm it will seek Chapter 11 bankruptcy protection but scheduled a news conference for Monday in New York. Chapter 11 of the Bankruptcy Code frees a company from the threat of creditors' lawsuits while it reorganizes its finances. Unless the court rules otherwise, the debtor remains in control of the business and its assets. The reorganization plan must be accepted by a majority of the company's creditors. Chrysler LLC, meanwhile, will likely have to wait until Monday to learn if a bankruptcy judge will rule that it can go forward with its plan to sell most of the company to a group headed by Italy's Fiat and take a big step toward its goal of a speedy exit from Chapter 11. U.S. Judge Arthur Gonzalez is expected to approve the sale but it's likely that attorneys for three Indiana state pension and construction funds, which have aggressively opposed the deal, will appeal the decision and possibly force Chrysler to further postpone the deal's closing. Chrysler claims that any substantial delay could push Fiat to back out if the deal, since the Italian automaker has set a deadline of June 15 to wrap up a transaction. U.S. automakers have been hammered by a brutal combination of a bad economy, a big jump in gas prices last year, and decisions to churn out gas-guzzling sport utility vehicles at a time when more American consumers were looking for cars that were cheaper to fill up. GM, with the government's backing and nearly $20 billion in U.S. loans so far, has made more dramatic changes in just a few days than it has in decades. A deal to sell its rugged but inefficient Hummer brand apparently was still being negotiated Saturday. GM's stock tumbled to the lowest price in the company's 100-year history on Friday, closing at just 75 cents after trading as low as 74 cents. A government plan for GM revealed Thursday would make the shares virtually worthless. The United Auto Workers' reluctant but overwhelming ratification of concessions on Friday will save GM $1.3 billion per year and bring its labor costs down to those of its Japanese competitors' U.S. plants. The new UAW deal freezes wages, ends bonuses and eliminates some noncompetitive work rules. In Berlin, the agreement hammered out will see Adam Opel GmbH put under the care of a trustee later Saturday, shielding the German automaker from GM's likely filing for bankruptcy protection early next week. The German government and several state governments will provide a $2.1 billion bridge loan, part of which will be available immediately. Siegfried Wolf, a co-CEO of Magna, said he expected the agreements with GM would be signed in five weeks time, but insisted that the deal struck Saturday would prevent Opel from being touched by whatever will happen to GM. "A solution has been found to keep Opel running," Germany's Finance Minister Peer Steinbrueck told reporters after more than six hours of talks. "You can be sure that we did not take the decision lightly. All the federal and state representatives are aware there are some risks."