If General Motors is unable to restructure its debt and payroll expenses by June 1, the company will be forced into bankruptcy. If that happens, the U.S. government could buy parts of GM and create a new company with those parts. General Motors’ bankruptcy plan calls for a quick sale of the company’s healthy assets to a new company that will be temporarily owned by the U.S. government, according to Reuters. The government will also forgive GM’s debt of $15.4 billion and extend the new company a line of credit.
The new company will plan to honor GM’s debt to secured lenders, to whom it owes about $6 billion, an anonymous source told Reuters Tuesday. GM’s unhealthy assets will remain in bankruptcy and will be sold off to pay back the automaker’s unsecured debt.
The new company’s ownership structure has not been cemented, but the source says that GM’s union and current bondholders will most likely get a piece of the pie.
The underlying idea of this plan is that in order for GM to survive, it needs to spend as little time in bankruptcy as possible. The government and GM both believe that consumers will be unwilling to buy a car from a bankrupt automaker. That’s not an unreasonable estimation. With Chrysler customers unable to cash lemon law checks because the company has gone bankrupt, a lot of consumers wouldn’t buy a car from a bankrupt car company.