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Business

GM could be split into two entities

Video by Philomé ROBERT , Sarah DRURY

Latest update : 2009-04-01

According to The New York Times, which cites people familiar with the matter, the US government is considering a breakup of General Motors into two entities, as part of a "controlled bankruptcy" of the troubled automaker.

AFP - The US government is considering a "controlled" bankruptcy for General Motors that would require approval by some creditors of a plan to break up the troubled automaker, US media said Wednesday.

Carefully monitored by the authorities, the bankruptcy would be "somewhere between a prepackaged bankruptcy and court chaos," The New York Times reported, citing people familiar with the matter.

"Instead of signing on every creditor as is typically required in prepackaged deals, administration officials are using as leverage the promise of taxpayer financing," the newspaper explained.

"The administration appears to be drawing in part from a playbook used with troubled banks, with the goal of creating a new, healthier GM, but leaving behind its liabilities and less valuable assets, perhaps for liquidation."

Under a plan being developed by the government, GM would file for "pre-arranged bankruptcy" and then use a special legal provision to promptly sell off desirable assets -- which could include Cadillac and Chevrolet -- to a new, government-financed company, according to the Times.

Meanwhile, The Washington Post reported that the government was poised to take a big role in reshaping the company's board of directors over the next six months.

A White House official told the Post that President Barack Obama's auto task force plans to consult with GM as it replaces a majority of its board, which has 12 members. But it was not yet known which members would leave.

Obama said Monday that "the United States government has no interest in running GM."

But, the newspaper noted, "in practice, it is already exerting tremendous influence over it, a situation that has triggered fierce debate over how much power the government should wield over the companies that it aids."

The company's new chairman, Kent Kresa, said Tuesday that GM officials were set to replace most of the board by August as part of the automaker's restructuring plans, the Post recalled.

"There will be continuing coordination as decisions about the leadership of the company are made," a White House official told the Post. "Folks from the autos task force will be involved in those decisions."

Fritz Henderson, GM's new CEO, said Tuesday that the company was prepared to go through bankruptcy court with government help if a better restructuring plan cannot be implemented within the 60-day limit imposed by the administration.

The auto task force said Monday that recovery measures proposed by GM and Chrysler "did not establish a credible path to viability" and warned that bankruptcy might be needed to restructure the firms.

Date created : 2009-04-01

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