WASHINGTON -- A top adviser to President Barack Obama today left open the possibility that bankruptcy could be the method by which an automaker restructures in order to be eligible for federal aid.
David Axelrod, senior adviser to the president, said a significant restructuring of the automobile industry is necessary but how restructuring comes has to be determined.
Axelrod was asked specifically to comment on the possibility of a bankruptcy filing by an automaker receiving federal assistance. He appeared on both Fox News Sunday and NBCs Meet the Press.
Im not going to get into the mode of how that happens, he said. Im not going to prejudge anything in advance of restructuring plans General Motors and Chrysler LLC are to submit to the government Tuesday.
Trouble with concessions
The questions stemmed from reports that GM and Chrysler are having difficulty getting the concessions they need for their restructuring plans, and that GM is considering a bankruptcy filing as an option to propose.
Under terms of loan agreements approved by the Bush administration in December, the companies must show how they will become viable for the long-term. The companies were told to get bondholders to accept stock in exchange for debt and to trim worker compensation to the level of the U.S. plants of import brands -- or explain how comparable savings would be achieved.
The Obama administration has not indicated that it will change those conditions, but Axelrod reemphasized today that concessions are expected from creditors, shareholders and executives -- not just workers.
Reuters reported that the UAW has broken off talks with GM and that talks with Chrysler are making no progress.
Other reports say GM bondholders are resisting a debt-for-equity swap.
The Wall Street Journal wrote that GM is considering a bankruptcy filing as an option to offer the government.
Viability to be determined
The federal government has pledged $13.4 billion to GM and $4 billion to Chrysler. GM is to get the final $4 billion of its allocation on Tuesday. Chrysler says it needs $3 billion more. Ford Motor Co. has not asked for emergency loans but wants access to federal borrowing if the economy gets significantly worse.
Under the loan agreements, a presidential designee, or car czar, is to certify by March 31 whether the restructuring plans meet the criteria for viability. The deadline can be extended one month. If the plans fall short, the federal loans would be called in immediately, probably forcing a bankruptcy.
The administration has not yet named a czar.
Axelrod and others say the administration has a working group ready to start evaluating the plans.