Treasury directing GM to prepare for bankruptcy filing: report

The US government is directing ailing auto giant General Motors to prepare for a bankruptcy filing by June 1, says a media report.

Citing people with knowledge of the plans, The New York Times said the US Treasury Department is directing General Motors to prepare the groundwork for a bankruptcy filing by June 1 deadline, despite GM's public contention that it could still reorganise outside court.

The report stated that members of President Barack Obama's automotive task force spent last week in meetings and on conference calls with GM officials and its advisers in Detroit and Washington.

Quoting people who had been briefed on the plans the daily said, the goal is aimed to prepare for a fast "surgical" bankruptcy.

However, GM, which has been granted $13.4 billion in federal aid, has insisted that a quick restructuring is necessary so that its image and sales are not damaged permanently.

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

The report noted that one plan under consideration would be to create a new company that would buy the "good" assets of GM almost immediately after the carmaker files for bankruptcy.

Less desirable assets, including unwanted brands, factories and healthcare obligations, would be left in the old company, which could be liquidated over several years, it added.

Further, Treasury officials are examining one potential outcome in which the 'good GM' enters and exits bankruptcy protection in as little as two weeks, using $5-7 billion in federal financing, the daily said quoting a person who had been briefed on the prospect the last week.

Since replacing Rick Wagoner on March 31, GM's chief executive, Fritz Henderson, has sent increasingly clear signals that bankruptcy is probable unless agreements are reached with labour and the bondholders by the administration's June 1 deadline, the report noted.