General Motors: 60 Days to Show Results

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For GM, a Quick Bankruptcy Is Possible

Bondholders may have to give more, too. GM has been trying to negotiate with them to drop their unsecured debt from $28 billion to about $9 billion. But bondholders have held out and even asked the government to help them recoup the debt. But the government is backing GM and thinks the bondholders may need to take less than one-third of the value of their bonds.

If GM can't get all it needs done in 60 days, senior Administration officials said, then the Treasury Dept. may force the company into a quick form of bankruptcy. Treasury officials have called it a surgical process in which GM would go in and shed some obligations to creditors and the union quickly. One senior Administration official called it a "quick rinse." GM would be out of bankruptcy as fast as 30 days with less debt and the ability to make a profit at lower sales levels.

Administration officials also think Chrysler has too much debt and needs to negotiate away some of its $6.8 billion in secured debt, which company executives are trying to do. Chrysler has also failed to strike a refinancing deal for the billions it owes the UAW and the union's Voluntary Employee Benefit Assn., which is a trust fund that pays worker health-care costs.

But more to the point, Obama's Administration doesn't think Chrysler can make it alone. The company doesn't generate enough cash or have the money to develop enough new models to survive by itself.

Chrysler's Deadline for a Fiat Deal

Treasury has given Chrysler 30 days to complete its deal to partner with Italy's Fiat or another major carmaker. If the company doesn't find a partner, then it would be cut off from government funding. The Treasury Dept. also will not let Fiat own more than 49% of Chrysler until the U.S. carmaker pays back all of its debt.

Chrysler's plan says the company can hold 10.7% market share over the next five years. Treasury officials doubt that, based on the company's history of losing share. The task force was harsh in its assessment of Chrysler, with officials singling out the inferior quality of its existing portfolio and its heavy truck mix. A senior Administration official noted specifically that Chrysler failed to get even one of its products recommended this year by the influential Consumer Reports magazine.

The task force also cited the company's difficulty in meeting toughening federal fuel economy standards with a product portfolio so heavily tipped toward trucks and SUVs. The company has just four all-new products, apart from those contemplated with Fiat, planned between 2009 and 2014, the task force noted.

In the case of both companies, the Administration is taking a hard line on the viability plans, and is demanding tougher action. There are no guarantees that the government will continue bailing them out.

With David Kiley in Detroit.
Welch is BusinessWeek's Detroit bureau chief.