Obama Administration feels GM and Chrysler failing to turnaround

As reported by CNN Money, the Obama administration turned down GM's and Chrysler's restructuring plans. GM gets 60 more days to prove it can run a viable business. Chrysler gets 30; the administration is saying it must merge with Italian automaker Fiat to do so.

The administration said that debtholders had not done enough. The companies had been trying to get bond holders to accept new equity in return for large portions of the outstanding debt. The bond owners had stonewalled, saying that they bought bonds, not equities of questionable value.

However, without reducing outstanding debt, neither company is going to make it. The Obama administration seems to be leaning towards putting them into a structured bankruptcy. Bankruptcy courts have authority to impose settlements on debt owners, as well as employee contracts and provisions affecting other stakeholders. This would be unfortunate but could prove necessary.

I'd previously noted that one company had produced a report for the auto industry, indicating that consumers were less likely to buy cars from an automaker in bankruptcy. It looks like the automakers will have to find out how accurate that report it (frankly, that report might not be accurate - things have changed and everyone's used to the idea that the Big 3 are in bankruptcy).