General Motors "Controlled" Bankruptcy
The government is attempting to pressure General Motors into a form of "controlled" bankruptcy whereby some of the major creditors would agree to a predetermined plan that would split the company into two pieces. It is hoped thereby to create a healthier General Motors by putting the liabilities and least valuable assets into a separate corporation which may later be liquidated, and leaving the stronger parts to be put into a new GM company.
Under the plan that is now being worked out this prearranged bankruptcy would allow the company to sell off the desirable assets to a new company which would be financed by the government. It is likely that these would include the Cadillac and Chevrolet divisions as well as other assets that the new company would need to continue to run the business. Those assets which are less profitable and less desirable, likely including the Hummer division, and those factories which create more of a drain on the corporation, would be left in the old company. The net gain from the sale of the desirable assets, including some stock in the new company, would be given to the original General Motors to help settle some of its creditor claims.
By engaging in a "controlled" bankruptcy for General Motors the government hopes to avoid the problems which normally occur during the bankruptcy process, which can create extensive and expensive court proceedings as the company and its creditors tried to reach an agreeable solution, during which time the bankrupt business would rapidly deteriorate.
By stepping in in this manner the government hopes to avoid objections from some of General Motors largest creditors most notably the United Automobile Workers. It is likely that the health care benefits would be reduced, and pension obligations would remain in the old company.
Further complicating any form of bankruptcy is General Motor's extensive relations with a network of international suppliers and subsidiaries. By this kind of prearranged bankruptcy it is hoped that this huge reorganization plan would have less of a disruptive effect on these other businesses. Many challenges remain and there is no precedent inasmuch as no preceding bankruptcy has ever matched the size and complexity of General Motors.
