As General Motors increasingly faces the possibility of bankruptcy, the Detroit automaker is making plans to shut down most of its U.S. factories for up to nine weeks this summer and to not make a $1 billion debt payment due June 1.
The move would save GM, which is operating with a $13.4 billion federal loan, money and help reduce swelling inventories of unsold cars and trucks.
Ray Young, the company’s chief financial officer, said GM is also rushing to launch an effort to get its debt holders to voluntarily exchange the $28 billion they are owed in exchange for a stake in the company. But whether that effort is successful or not, GM does not plan to pay what it owes come June 1.
Detroit Free Press
The closures, up to nine weeks, are due to slumping sales and growing numbers of unsold vehicles, sources said.
Analysts said the company could be seeing sales fall due to talk about a potential bankruptcy.
The exact dates of the closures are not known, but they will occur around the normal two-week shutdown in July when changes are usually made from one model year to the next.
Thousands of workers could be laid off but would still get most of their pay because their United Auto Workers union contract requires the company to make up much of the difference between state unemployment benefits and their wages. Press Association
A debt exchange at GM would give bondholders the option to swap their $27.5bn in unsecured debt for equity in the carmaker.
GM confirmed that it was trying to launch a bond exchange, which it described as a “critical part of our restructuring efforts”, although it would not give a timetable or comment on a meeting between bondholders and the task force. If GM is doing so, it would miss a $1bn debt payment due on June 1. “A successful bond exchange is an essential element of our out-of-court restructuring efforts, and we are working aggressively to launch an exchange,” GM said.
“The exchange could still be in process on June 1, in which case we would not expect to make the June 1 Series D bond payment.” News that GM might miss the payment sent shares down 13.9 per cent yesterday. GM said that it would also miss the June 1 bond payment if it were required to finish its restructuring in a court-supervised bankruptcy process. The carmaker is making contingency plans for a Chapter 11 filing if its efforts to restructure outside court fail.”
GM’s management is crafting a revised restructuring plan required by President Barack Obama’s administration, which last month removed Rick Wagoner as chief executive and charged Fritz Henderson, his replacement, to come up with a more radical plan to reshape the business within 60 days. Financial Times
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