GM Shifts Negotiations Into High Gear

DETROIT — General Motors Corp. is expected this week to accelerate talks with the United Auto Workers union and move toward closing about 2,600 dealerships.

The giant auto maker also is likely this month to approach banks holding secured debt, hoping to work out terms to ease the company?s debt burden.

Reaching agreement on these fronts is critical if GM is to restructure outside of bankruptcy court.

The company has new leverage as it re-engages in talks, thanks to the bankruptcy filing last week by Chrysler LLC. But differences between the two auto makers mean that leverage can take GM only so far.

?The move with Chrysler signals to the GM creditors that bankruptcy is a viable option,? said Lewis Rosenbloom, a bankruptcy lawyer with Dewey & LeBoeuf. Mr. Rosenbloom?s firm does extensive work for GM and Chrysler. ?The government is not just going to throw money at this without getting a consensual accord, so I think this is a harbinger of things to come.?

The Treasury Department has given GM until June to work out a restructuring plan and has indicated it may push the company into bankruptcy if the necessary deals don?t materialize.

GM?s hopes of staying out of court hinge on its ability to convince thousands of unsecured bondholders, owed $27 billion, to accept a small equity stake in the company in exchange for forgiving most of the debt. Several bondholders have said the equity exchange will fail if the terms aren?t sweetened.

GM executives had been reluctant to embrace bankruptcy in recent months over fear that car buyers won?t purchase from an auto maker in Chapter 11 proceedings. GM also fears that in bankruptcy court, the auto maker?s restructuring could be stalled by disgruntled creditors.

The Obama administration has said it will support a GM bankruptcy so that it moves quickly, much like the government is promising in Chrysler?s case. But GM?s case is much different.

In addition to confronting an issue with unsecured bondholders that didn?t exist at Chrysler, GM is looking to shed or sell several divisions, including Saturn and Pontiac. GM is expected next Monday to offer payments to the dealers who are targeted for closure, according to people familiar with the matter. Those dealers can either accept the offer, or take their chances in bankruptcy court. Dealers have expressed concern over how GM will determine which franchises survive.

The auto maker continues to talk with interested parties about purchasing Saturn and Hummer. Both of those sales have been slowed by the potential bankruptcy filing.

GM isn?t just slimming down U.S. operations.

Last Monday, GM Chief Executive Fritz Henderson said the company may sell its entire stake in Opel, which is the heart of GM Europe?s operations.

Beyond shedding business units, GM has yet to ink a deal with the UAW on labor-cost reductions and retooling retiree health-care obligations. Those talks are expected to take all month. GM is offering its union a 39% stake and about $10 billion in cash in exchange for the $20 billion the company owes a UAW trust fund responsible for paying health benefits.

UAW president Ron Gettelfinger said the union will turn up the heat on GM talks after it gets squared away with the Chrysler bankruptcy.

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