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Report: Obama decides bankruptcy best for GM

(Agencies)
Updated: 2009-04-01 10:31

SINGAPORE – President Barack Obama has determined that a prepackaged bankruptcy is the best way for General Motors Corp to restructure and become a competitive automaker, Bloomberg reported, quoting people familiar with the matter.

In this July 15, 2008 file photo, the General Motors world headquarters in Detroit. [Agencies]

Obama also is prepared to let Chrysler LLC go bankrupt and be sold off piecemeal if the third-largest US automaker can't form an alliance with Fiat SpA, Bloomberg said, citing members of Congress who have been briefed on the subject and two other people familiar with the administration's deliberations.

Related readings:  US government may elbow GM into bankruptcy  Ford, GM to cover car payments if buyer loses job  GM chairman agrees to resign at White House's request  Timeline of GM's decline

US stock futures slid on Wednesday on the report, with S&P futures down 1.5 percent, while the dollar and the euro fell against the yen, abruptly reversing earlier gains.

But a senior Obama administration official said the report was not accurate and that the president's thinking on the situation had not changed since Monday.

Obama on Monday gave GM 60 days to come up with deeper cost and debt reductions than the biggest US automaker had proposed in a viability plan submitted last month.

But a "quick and surgical" bankruptcy the Obama administration described as an option appears to be inevitable, the people familiar with the matter said in the Bloomberg report.

Automakers around the world have seen sales plummet as recession-wary consumers cut back on spending, forcing them to cut production and lay off workers.

GM will close more US plants and cut more jobs and still faces a higher probability of bankruptcy to shed debt, new GM Chief Executive Fritz Henderson said on Tuesday.

A possible bankruptcy plan being discussed for GM includes quickly forming a new company of the automaker's most profitable parts, while a group of other units would remain under bankruptcy protection for a longer period, a source familiar with the plans said on Tuesday.

But analysts say the risk is that any bankruptcy could be somehow derailed, or drag on for months or years, hurting stock holders, creditors and workers, and causing more uncertainty for financial markets and the sputtering US economy.

While the automakers would still prefer to avoid bankruptcy, advisers to both GM and Chrysler LLC have been working to prepare for potential bankruptcy filings that would aim to preserve, or sell off, the best parts of the companies.

"Our focus is on accelerating the speed of our operational restructuring and reducing liabilities and debt on the balance sheet," Bloomberg quoted GM spokeswoman Renee Rashid-Merem as saying in an e-mail.

"GM will take whatever steps are necessary to successfully restructure our company."

Chrysler spokesman Todd Goyer didn't immediately comment.