GM preps for possible bankruptcy

The U.S. Treasury Department is directing General Motors to lay the groundwork for a bankruptcy filing by June 1, even though the automaker has publicly stated it could reorganize outside of court.

GM is operating under emergency U.S. government loans. According to U.S. media reports, the Obama administration’s task force overseeing its bailout has told GM that it must cut costs and reduce its debts in order to continue to receive aid.

The White House-appointed autos task force has given GM 60 days to come up with a restructuring plan and it is trying to determine whether the automaker can be a viable company.

Reports said preparations are aimed at assuring a GM bankruptcy filing is ready if the company is unable to reach agreement with bondholders to exchange roughly US$28 billion in debt into equity in GM and with the United Automobile Workers union.

A plan under consideration would create a new company that would buy the “good” assets of GM after the carmaker files for bankruptcy, according to the New York Times.

Less desirable assets, including unwanted brands, factories and health care obligations, would be left in the old company, which could be liquidated over several years, the paper said.

Last week, GM’s chief executive said the automaker wanted to restructure out of court, but also preparing for a bankruptcy filing.