General Motors Corp. may have to wait out the long holiday weekend to learn if its bankruptcy plan is moving forward, after U.S. Judge Robert Gerber adjourned a three-day hearing without indicating when he will rule on GM's plan to sell its good assets to a new company.
Gerber asked GM's attorneys to submit a proposed order that would be entered if the sale were to be approved. They said they would do so by Friday night or Saturday, July 4th. Gerber is expected to rule some time after that.
A lawyer for GM warned the court that the only alternative to GM's plan would be a liquidation of the company's assets that would have "horrific" consequences for everyone involved.
Attorney Harvey Miller said the government is committed to cutting off funding to GM if the sale is not approved by July 10. That followed testimony Wednesday from a member of President Barack Obama's automotive task force who indicated the government has no plans to continue funding GM past next Friday if the sale is not approved by then.
Some parties objecting to the sale argued in court that the Obama administration won't allow GM to fail.
"Essentially the objectors are asking you to play Russian roulette," Miller told Gerber, adding that ignoring the deadline puts the futures of GM's employees, retirees, and creditors all at risk.
GM's government-backed plan for a quick exit from Chapter 11 protection hinges on the sale of most of its assets to a new entity, allowing the automaker to leave behind many of the costs and liabilities that have made it unprofitable. The Detroit car maker's June 1 filing for bankruptcy protection was the fourth-largest in U.S. history.
Harry Wilson, the task force member that testified on Wednesday, said a quick sale is needed, because the government cannot keep sinking billions in tax dollars into the company for an open-ended period of time with no guarantee of success.
But on Thursday, Michael Richman, an attorney for a trio of bondholders opposed to GM's plan, told Gerber to "call the government's bluff" and require GM to restructure itself under Chapter 11 instead of approving the quick sale of its assets. This would allow the bondholders to negotiate for more in exchange for the debt they hold, he said.
Richman said that while the company may be powerless to fight the government's demands, the court can "push back" to protect the interests of all the company's stakeholders. The trio of bondholders Richman represents hold just a fraction of GM's unsecured debt. One of the members bought his bonds for just 2 cents on the dollar, while the other two spent no more than 20 cents on the dollar for theirs.
Miller contended that with the government unwilling to provide funding for a restructuring and no other lenders out there to take their place, the sale plan is GM's only option for survival. He also said an extended stay under court protection hurts GM's ability to attract and keep customers. Richman countered that GM's sales for June, though down about 30 percent, were slightly better than the company expected.
Hundreds of parties, including bondholders, unions, state officials, consumer groups and individuals, have filed objections to the sale, threatening to hold up the process.
Last month, numerous objections also dragged out rival Chrysler LLC's sale hearing for three days before it was approved by the bankruptcyæjudge in that case. A group of the automaker's bondholders and consumer groups also appealed the sale all the way to the Supreme Court before it ultimately went through and the automaker emerged from court oversight as a new company.
As part of the sale plan reached with the auto task force, the U.S. government will get a 60 percent stake in the new GM in exchange for what's expected to eventually total nearly $50 billion in aid.
The Canadian government, which has also contributed billions in aid, will get a 12.5 percent stake while the United Auto Workers union will take a 17.5 percent share to fund its health care obligations. Unsecured bondholders receive the remaining 10 percent.
Existing GM shareholders are expected to be wiped out.
The remaining pieces of the company, including some closed plants, will become the "Old GM" and will be liquidated.
GM hopes to emerge as a leaner company, less burdened by debt and labor costs as it faces a severe recession that has sapped car and truck sales. Automakers have continued to see sales tumble in the first half of this year.