GM skirts bankruptcy, but not its pain

By Kevin Krolicki - Analysis

DETROIT (Reuters) - Weeks before it runs short of cash, General Motors Corp may have won a reprieve from bankruptcy by U.S. lawmakers who reluctantly concluded it was too big to fail and the economy was too weak to take its collapse.

Now the bad news: GM is still headed for wrenching restructuring under federal oversight that will hit its investors, creditors, dealers and workers almost as hard as if the top U.S. automaker had filed for bankruptcy protection.

At least nine GM plants will be mothballed, another 30,000 workers will be dismissed, retirees will face rising health- care bills, bond holders will be paid off for as little as 30 cents on the dollar and stock holders could be wiped out.

And that's the soft-landing scenario.

If a now-shelved merger with Chrysler LLC is revived under government backing -- as some Republican lawmakers urged last week -- analysts expect up to 40,000 more job cuts and seven more plants to be shuttered from Michigan to Mexico.

The aim is to forge a leaner automaker that can emerge from a crisis that exposed the fatal weakness of GM's debt load and the drain from too many dealers, brands and workers.

"We are not dealing with an industry on the verge of failure. We are dealing with an industry that has failed," said Jack Williams, resident scholar at the American Bankruptcy Institute.

GM lobbied hard for aid to avoid a Chapter 11 bankruptcy filing for protection from creditors, arguing such a step would send it spiraling into liquidation as consumers shunned its cars and trucks and questioned the backing of its warranties.

The still-emerging U.S. government response is expected to be overseen by a "car czar" empowered to set targets and enforce standards for the restructuring of GM, Chrysler and Ford, if the latter draws down a credit line it has sought.

Experts see that as an attempt to craft a stigma-free alternative to bankruptcy intended to achieve many of the same aims by extracting concessions from every group with a stake in GM's ultimate success.

"In theory, there's not anything you can do in bankruptcy that you couldn't do out of bankruptcy," said financier Wilbur Ross, known for his reorganizations in the U.S. steel and auto- parts industries.

Columbia University economist Jeffrey Sachs agreed in congressional testimony last week, telling lawmakers that the automakers should be allowed to reorganize outside bankruptcy.

"We don't need Chapter 11 filing to do a balance sheet restructuring. We can do it in the shadow of this," he said.

SHAPE-UP AT THE TOP

Senate Banking Committee Chairman Christopher Dodd of Connecticut said on CBS's "Face the Nation" Sunday that GM should replace its chief executive if it receives emergency government loans.