GM urges quick approval of sale plan
Bree FowlerWarning that the demise of General Motors Corp. would have a disastrous ripple effect over the entire U.S. economy, an attorney for the automaker called Wednesday for the speedy approval of GM's plan to sell the bulk of its assets and emerge from court oversight as a new company.
GM attorney Harvey Miller said in a bankruptcy court hearing that the automaker's only option to the sale is liquidation. He noted the Treasury Department will cut off funding for the company's operations after July 10 if the sale is not approved by then.
No other investors have stepped forward with an alternate plan or to supply the more than $50 billion in financing the Treasury will have put into GM before all is said and done, Miller said.
"The economics in this case don't change if this sale doesn't get approved, they just get worse," Miller said, adding that the resulting liquidation would place the future of GM's hundreds of suppliers in danger, as well as send the U.S. into an even deeper economic crisis.
Detroit-based GM's government-backed plan for a quick exit from Chapter 11 hinges on the sale plan, which would allow the automaker to leave behind many of the costs and liabilities that have made it unprofitable.
But hundreds of parties including bondholders, unions, state officials, consumer groups and individuals have filed objections to the sale, threatening to hold up the process.
Closing arguments in the sale hearing began Wednesday afternoon with Miller's summation and continued into the evening with statements from the sale's opponents. The hearing is scheduled to resume at 9 a.m. EDT Thursday. It's not clear when U.S. Judge Robert Gerber will rule.
Tom Kennedy, an attorney for the International Union of Operating Engineers, United Steelworkers and IUE-CWA, said if the sale goes through it would lead to the elimination of benefits for the unions' retirees.
Consumer groups and several individuals with product-related liability claims against the company are also trying to block the sale because people with pending litigation against GM will be forced to seek compensation from "Old GM," where there will likely be nothing left to pay their claims.
Sandy Esserman, an attorney representing people with asbestos-related claims against GM, said the court needs to make sure that future asbestos victims are taken care of.
"Someday, a few years from now, somebody is going to get sick and die because of asbestos," Esserman said. "Where are they going to go?"
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. Attorneys representing the bondholders were scheduled to make their arguments Thursday morning.
GM, 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. Wednesday marked day two of the GM hearing.
The objectors in the Chrysler case also appealed the sale ruling all the way to the Supreme Court, further delaying its closing, before it ultimately went through.
Earlier in Wednesday's hearing, Harry Wilson, a senior member of President Barack Obama's auto task force, testified that the U.S. government will not continue to fund GM operations past July 10 if the automaker doesn't get approval for its sale plan by then.
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.
Wilson said the government decided to put in place the sale deadline, because numerous experts agreed that GM could not survive a drawn-out restructuring process. And 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, he said.
The task force member 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.
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.
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 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.