General Motors Corp. Chief Executive Officer Frederick A. “Fritz” Henderson said Friday that a bankruptcy filing remains “probable” around June 1 because the auto giant has not achieved breakthroughs in drastically reducing its debt and labor costs, though the company is working fervently to avoid bankruptcy.
Chrysler executives, meanwhile, warned labor unions that the company will go bankrupt by the end of this month unless they agree to slash labor costs.
In a conference call with reporters, Mr. Henderson said GM is working on two parallel plans: one that involves breaking up the company in bankruptcy, and one that doesn’t.
“Contingency planning is under way,” he said. “We are on several tracks.”
Mr. Henderson also said GM will need more government aid sometime in the April-to-June quarter, although the timing has yet to be decided. In a reorganization plan presented to the Treasury on Feb. 17, the company said it would need $4.6 billion in the quarter, and that hasn’t changed.
“At this point, it would be premature to say that there has been an approval for further funding, at least from a GM perspective,” he said.
GM has already received $13.4 billion in government loans, and it must meet strict requirements to cut labor costs and debt by a June 1 deadline. Mr. Henderson said the company will be prepared to file for bankruptcy if it is unable to reach those goals out of court.
The decision to file for bankruptcy would be made with the Treasury and GM’s board of directors, but the government is not pressuring GM to file, he said.
“I felt several weeks ago that it would be more probable that we would need to go through a bankruptcy process,” he told reporters. “I certainly feel that way. That continues today. But I wouldn’t be able to hazard a guess as to what the probabilities would be.”
If GM does file for bankruptcy, speed is important, he said. GM would seek agreements with creditors and unions before filing, or go through a fast in-court process.
“It’s all about speed,” he said. “This environment is not helpful for us.”
GM has been focused on its strategy for remaining viable, so it hasn’t yet launched intensive discussions with its bondholders.
The company is preparing a public bond-exchange offer that would let the company start slashing its debt, even without an agreement from a committee of large institutional bondholders. That is aimed at enabling the Detroit automaker to wipe out most of its $28 billion unsecured debt by June 1.
GM is holding off talks with the United Auto Workers until the union reaches a settlement with Chrysler LLC, which faces an April 30 deadline to restructure and forge an alliance with Italy’s Fiat Group SpA, Mr. Henderson said.
GM’s restructuring plan calls for the automaker to keep four core brands - Chevrolet, Cadillac, GMC and Buick. Mr. Henderson stressed that GMC and Buick are highly profitable for the company. He also said the company will not sell its ACDelco parts division, despite having potential buyers.
“It’s a highly profitable business for us, it’s creating good, strong cash flow,” he said. “Our conclusion was that we weren’t going to get the value for the business. We’d rather keep it and grow it.”
GM said it has several parties interested in buying its Saturn and Saab brands, which the company wants to spin off, and various European investors are looking at its German Opel unit.
Meanwhile, Chrysler officials warned unions that the company will go bankrupt at the end of this month if they don’t agree to bring labor costs in line with those of workers making Japanese cars in the United States.
Chrysler Chief Executive Officer Robert L. Nardelli and President Thomas W. LaSorda said Friday in a letter to employees that the automaker has to get its labor costs at Chrysler Canada down from $62.68 an hour to Toyota Motor Corp. Canada’s labor rate of about $47 an hour, the Associated Press reported.
The CAW and Chrysler are scheduled to resume bargaining talks Monday. Canadian Industry Minister Tony Clement said there has to be a deal between the CAW and Chrysler in the next two weeks, or the Canadian and U.S. governments won’t provide further bailouts.
“Let me be clear. Our negotiations are about saving Chrysler Canada. We are coming down to the wire in the fight for our company’s survival - and we need your support,” the Chrysler chief said.
In a separate e-mail to all Chrysler employees, Mr. Nardelli noted that a successful alliance with Fiat cannot occur unless the union negotiations are successful at slashing costs.
Fiat Chief Executive Officer Sergio Marchionne, in an interview published Wednesday, said the Italian automaker will walk away from a nonbinding agreement to take a 20 percent stake in Chrysler and share its small-car technology unless the U.S. automaker’s unions agree to major cost cuts.
Chrysler, which is living on loans from the U.S. and Canadian governments, has to take on a partner and gain concessions from unions and debtholders by April 30, or the Canadian governments and the Obama administration will stop lending it money.
No other suitors have emerged, and it’s likely that no bankruptcy financing will be available, so Chrysler would have little choice but to be auctioned off in pieces.