GM shares slump as bankruptcy fear grows

By Soyoung Kim

DETROIT (Reuters) - General Motors Corp shares plunged 16 percent on Monday as traders shed positions out of fear the U.S. government will push the automaker into a bankruptcy that could wipe out existing equity.

GM, which is operating with $13.4 billion in emergency federal loans, has until June 1 to win sweeping concessions from bondholders and the United Auto Workers union.

The New York Times reported late on Sunday that the U.S. Treasury Department was directing GM to lay the groundwork for a bankruptcy filing should it fail to reach give-back deals with stakeholders by the deadline set by the Obama administration two weeks ago.

President Barack Obama has said bankruptcy might be necessary, but his chief spokesman stressed on Monday that the "president and the (administration's) autos task force haven't prejudged anything."

The administration, according to spokesman Robert Gibbs, believes government's role in determining what steps GM will take has its limits.

"The eventuality of that bankruptcy or not, in some ways, will be determined by many of those stakeholders," Gibbs said at the White House.

Sources familiar with the situation told Reuters last week GM was in "intense" and "earnest" preparations for a possible bankruptcy filing.

"I think the amount of uncertainty has increased," Shelly Lombard, senior high yield analyst at independent research firm Gimme Credit, told Reuters Financial Television.

"At this point, I think a filing is more imminent, but by the same token I think what will happen to bondholders and their potential recovery is probably more uncertain than ever," Lombard said.

GM is under pressure to cut $28 billion of unsecured debt by two-thirds, make half of its remaining payments to a union healthcare trust in equity rather than cash and reduce hourly wages and benefits to match those paid by foreign automakers.

Chrysler, about 80 percent controlled by Cerberus Capital Management LP, also faces possible bankruptcy unless it cements an alliance with Italian automaker Fiat SpA by April 30 and wins concessions from bank lenders and the UAW.

A GM or Chrysler bankruptcy also could pressure rival Ford Motor Co, which has not sought emergency U.S. government loans, but faces severe pressure from the drop in U.S. auto industry sales to the lowest levels in 27 years.

"We believe Ford may have to revisit its informal request for $9 billion of loans from the U.S. government, unless industry sales begin to recover later this year," Standard & Poor's said on Monday.

GM LESS OPPOSED TO BANKRUPTCY?

GM Chief Executive Fritz Henderson, who took charge of the struggling automaker when the Obama administration ousted his predecessor, Rick Wagoner, has said GM would prefer to restructure out of court, but was prepared to file for bankruptcy if necessary.