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CAR TROUBLE: GM To Close Factories For 9 Weeks; Plans To Skip $1 Billion Debt Payment

gm2.jpgTwo people briefed on the plan say General Motors Corp. will close most of its U.S. factories for up to nine weeks this summer because of slumping sales and growing inventories of unsold vehicles.

The people did not know exactly when the shutdowns would occur, but both say they will include the normal two-week closure in July to change from one model year to the next. Neither person wanted to be identified because workers have not been told of the shutdowns.

GM spokesman Chris Lee would not comment other than to say the company notifies employees before making any production cuts public.

GM is living on $13.4 billion in government loans and faces a June 1 deadline to restructure or seek bankruptcy protection.

GM Plans to Skip $1 Billion Debt Payment

Struggling to restructure itself amid increasing odds of a bankruptcy filing, GM said it plans to skip a $1 billion debt payment due June 1, according to a Wall Street Journal report on Wednesday.

GM finance chief Ray Young told reporters at a Chinese auto industry summit in Detroit the beleaguered automaker is relying on a debt-for-equity exchange or court protection to lower its $28 billion in debt.

He said bankruptcy is “probable,” though GM, with the full backing of the U.S. government, will right the ship “in court or out of court,” the Journal reported.

GM spokeswoman Renee Rashid-Merem said the company is working aggressively to reach a deal with bondholders, which she said is an “essential element” of the restructuring efforts.

She explained that there are two possible scenarios in which GM wouldn’t make the payment. One would be if the bond exchange was not yet completed by June 1, and the other would be if the company falls into bankruptcy before the deadline. GM’s warning that it might miss the payment puts more pressure on creditors to agree to the equity swap, according to Egan-Jones.

“We look for a default where the bondholder gets primarily equity as the government tries to get concessions from every corner to keep GM running albeit as a much smaller company,” the credit ratings agency said.

The development is the latest in a series of signals pointing toward a potential bankruptcy. Last week, GM CEO Fritz Henderson said that while it’s not the preferred option, bankruptcy remains the likely outcome of the company’s drawn-out saga considering the demands of the Obama administration.

Earlier Wednesday, Goldman Sachs said that GM and Chrysler will probably file for bankruptcy in the coming weeks, paving the way for rival Ford Motor Co. to capitalize on the market-share front.

“While there is significant operating upside at GM …, we see a high likelihood that the current class of common shares will be terminated through bankruptcy, [or significantly diluted in a best case],” Goldman analyst Patrick Archambault told clients in a note.

As far as union discussions, CFO Young said negotiations on restructuring $20 billion in health-care obligations have eased as the UAW focuses on a deal with Chrysler LLC, which faces its own deadline at the end of the month to partner with Italy’s Fiat.

GM shares gave up early gains to close down 1 cent at $1.69. The Dow component had risen as high as $1.84 during the session.

(Source: WCBSTV / Market Watch / Wall Street Journal)

2 Responses

  1. Considering the company is for all purposes bankrupt and is operating only because the Treasury is bailing them out….

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