Bankruptcy won’t be easy or quick

WASHINGTON (AP) — President Barack Obama’s assertion that he will not let U.S. automakers vanish is a double-edged sword.

It gives assurances and hope to a beleaguered industry and its customers, but it removes leverage Obama desperately needs to get bondholders and labor to make needed concessions.

With Washington and Detroit increasingly resigned to the likelihood of some form of accelerated bankruptcy for General Motors Corp. — and perhaps for Chrysler LLC, too — getting the parties to give ground is the biggest stumbling block.

The president Monday portrayed bankruptcy — a Chapter 11 proceeding designed to make the company leaner but viable — as a means for the automakers to “quickly clear away old debts.”

But speed is hardly guaranteed.

A GM bankruptcy would be one of the most complicated court-overseen restructurings ever undertaken. General Motors, with operations around the globe, has more than $170 billion in liabilities and assets of $110 billion.

The federal government has already invested in GM and Chrysler in hopes of saving them from collapse, $13.4 billion for GM and $4 billion for Chrysler. What’s more, Obama emphasized that he did not endorse a proceeding “where a company is simply broken up, sold off, and no longer exists.”

Financial experts, however, say the bondholders and the United Auto Workers may need the threat of actual liquidation to help reduce company liabilities.

“The ultimate hammer that a company in financial distress has when they are trying to knock heads is that if they don’t play nicely, this company is going to liquidate,” said Peter S. Kaufman, president of the Gordian Group, which advises corporations on restructurings.

“Now you have everybody around the table saying, ‘why should I give my best deal?’ — government has been funding, and government admits we won’t allow a liquidation. That’s not a great dynamic to getting a deal done.”

The talk of bankruptcy came as U.S. auto sales plummeted again in March compared with a year ago. But improvement over February sales gave rise to some optimism that the market may have reached the bottom.

“The same obstacles that may prevent them from coming up with an acceptable plan, which is to bring along the UAW and bondholders, may be exactly the same obstacles that would make a quick or prepackaged bankruptcy impossible,” said Marina Whitman, a business professor at the University of Michigan and a former executive and economist at GM.