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GM Board Not Ruling Out Bankruptcy
DETROIT (Dow Jones) -- Members of General Motors Corp.'s board of directors are willing to consider "all options' for the ailing auto maker, including an eventual filing for bankruptcy protection, a stance that puts them in rare disagreement with Chairman and Chief Executive Rick Wagoner, people familiar with the matter said.
As part of his push to win a federal bailout for the company, Mr. Wagoner told Congress this week that GM management believes bankruptcy protection is not a viable option for the company. Instead, GM is focusing on persuading lawmakers to provide financial help, Mr. Wagoner said.
The board, which in the past has publicly offered Mr. Wagoner its strong support, agrees that seeking government funding is the company's top priority. But it isn't willing to dismiss the possibility of a bankruptcy filing, say people familiar with the thinking of the board's outside directors.
In a statement provided to The Wall Street Journal on Friday, GM said the board had discussed bankruptcy but didn't view it as a "viable solution to the company's liquidity problems." The board "is committed to considering all options in light of circumstances as they may develop." A GM spokesman, Tony Cervone, said that management is considering doing everything in its power to avoid a filing.
GM said Mr. Wagoner declined to be interviewed. Several of GM's board members could not be reached for comment on Friday. It is unclear whether the board has hired independent advisers to help it evaluate options it may have to consider.
New signs of tension in the boardroom could complicate the next few weeks for Mr. Wagoner, 55 years old. In the past month, he has had to acknowledge GM is using cash at an alarming rate. Mr. Wagoner said that as soon as January, amid frozen credit markets and a collapse in demand for automobiles, the company could fall short of the minimum levels it needs to stay out of bankruptcy court. On Friday, GM shares closed at $3.06, up 18 cents, or 6.25%. A year ago, the stock was trading at about $42.
Friday's split represented at least the second time in recent weeks the board has shown a willingness to oppose Mr. Wagoner. This fall, Mr. Wagoner's management team presented a plan to potentially merge with Chrysler LLC. Some directors gave that plan a cold reception, according to people familiar with the meetings. By early November, when GM was set to report deep losses and $6.9 billion in cash outflows for the third quarter, the board encouraged GM management to quit the merger talks and focus solely on its liquidity crisis, these people said.
Of GM's 14 board members, nine have been in place since Mr. Wagoner became chairman in 2003. Many were elected when Mr. Wagoner's mentor and predecessor, Jack Smith, was running the auto maker. Lead director George Fisher, the retired chairman of Eastman Kodak Co., several times in recent years voiced support for Mr. Wagoner as the company racked up billions in losses. Other directors include Phil Laskawy, the retired Chairman of Ernst & Young, who was recently named Chairman of Fannie Mae, and University of North Carolina president Erskine Bowles, who was chief of staff for President Bill Clinton.
In a break from its traditional monthly board meetings, early in the summer the board started convening by phone each Friday. In recent weeks it has added several more weekly teleconferences to discuss how GM should approach the liquidity option.
On Friday, GM said it is pushing ahead with new cost-cutting measures. It said three plants in the U.S. and one in Ontario, Canada, would extend their normal two-week holiday shut-downs into January. It also said it would close down an Ontario truck plant sooner than it had planned.
GM also confirmed it is ending leases on two of the five remaining corporate jets in its fleet. The move comes after Mr. Wagoner and Detroit's two other auto CEOs were chastised in Congress for flying corporate jets to meetings this week in which they asked for billions of dollars in public assistance.
"We understand the symbolic issue of people showing up in Washington in corporate jets," GM spokesman Tom Wilkinson said. "We're very sensitive to that."
Mr. Wagoner and the chief executives of Ford Motor Co. and Chrysler LLC were in Washington hoping to get $25 billion from the $700 billion fund administered by the Treasury Department for troubled financial institutions, or to persuade Congress to accelerate the release of $25 billion in loans that had already been pledged to Detroit through an Energy Department fuel-efficiency program.
Mr. Wagoner, Ford's Alan Mulally and Chrysler's Robert Nardelli told lawmakers they have been restructuring their companies and need bridge loans to carry them through until the economy recovers. Mr. Wagoner asked the government for $10 billion to $12 billion in immediate funding.
All three expressed concern that a bankruptcy filing by any one of their companies could cause a collapse of the others. Because the companies share suppliers, one maker's failure could bring down the supplier network, they say, impacting one or both of the others. They also point to studies showing that consumers would be unwilling to buy cars from bankrupt auto makers, out of concern that warranties may not be honored or spare parts could become unavailable.
Lawmakers were skeptical that the companies had taken the tough steps to put their companies on the road to profitability. After enduring two days of harsh criticism, the Detroit CEOs were told to come back by Dec. 2 to describe how they'd use taxpayer funds to become "viable."
On Friday, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said in a letter that auto makers must provide "a forthright, documented assessment" of how much cash they need to become stable for the long term. They also said the companies, if granted loans, must make the government senior to all other creditors, meet fuel-efficiency targets, limit executive pay and offer warrants to allow taxpayers to profit if the companies recover.
Some in Congress remain convinced that bankruptcy is a possible avenue. Republican Sen. Bob Corker of Tennessee, a member of the Senate Banking Committee, said Republican senators have been discussing a so-called prepackaged bankruptcy, in which creditors agree to restructure debts before a company seeks court protection.
Companies sometimes are able to use such an option to avoid long stays in bankruptcy court. Bankruptcy experts warn, however, that a bankruptcy proceeding for a large company such as GM could get bogged down because of its complex union and dealership contracts and array of creditors.
-- John D. Stoll, The Wall Street Journal
(Sharon Terlep and Josh Mitchell contributed to this article.)
DETROIT (Dow Jones) -- Members of General Motors Corp.'s board of directors are willing to consider "all options' for the ailing auto maker, including an eventual filing for bankruptcy protection, a stance that puts them in rare disagreement with Chairman and Chief Executive Rick Wagoner, people familiar with the matter said.
As part of his push to win a federal bailout for the company, Mr. Wagoner told Congress this week that GM management believes bankruptcy protection is not a viable option for the company. Instead, GM is focusing on persuading lawmakers to provide financial help, Mr. Wagoner said.
The board, which in the past has publicly offered Mr. Wagoner its strong support, agrees that seeking government funding is the company's top priority. But it isn't willing to dismiss the possibility of a bankruptcy filing, say people familiar with the thinking of the board's outside directors.
In a statement provided to The Wall Street Journal on Friday, GM said the board had discussed bankruptcy but didn't view it as a "viable solution to the company's liquidity problems." The board "is committed to considering all options in light of circumstances as they may develop." A GM spokesman, Tony Cervone, said that management is considering doing everything in its power to avoid a filing.
GM said Mr. Wagoner declined to be interviewed. Several of GM's board members could not be reached for comment on Friday. It is unclear whether the board has hired independent advisers to help it evaluate options it may have to consider.
New signs of tension in the boardroom could complicate the next few weeks for Mr. Wagoner, 55 years old. In the past month, he has had to acknowledge GM is using cash at an alarming rate. Mr. Wagoner said that as soon as January, amid frozen credit markets and a collapse in demand for automobiles, the company could fall short of the minimum levels it needs to stay out of bankruptcy court. On Friday, GM shares closed at $3.06, up 18 cents, or 6.25%. A year ago, the stock was trading at about $42.
Friday's split represented at least the second time in recent weeks the board has shown a willingness to oppose Mr. Wagoner. This fall, Mr. Wagoner's management team presented a plan to potentially merge with Chrysler LLC. Some directors gave that plan a cold reception, according to people familiar with the meetings. By early November, when GM was set to report deep losses and $6.9 billion in cash outflows for the third quarter, the board encouraged GM management to quit the merger talks and focus solely on its liquidity crisis, these people said.
Of GM's 14 board members, nine have been in place since Mr. Wagoner became chairman in 2003. Many were elected when Mr. Wagoner's mentor and predecessor, Jack Smith, was running the auto maker. Lead director George Fisher, the retired chairman of Eastman Kodak Co., several times in recent years voiced support for Mr. Wagoner as the company racked up billions in losses. Other directors include Phil Laskawy, the retired Chairman of Ernst & Young, who was recently named Chairman of Fannie Mae, and University of North Carolina president Erskine Bowles, who was chief of staff for President Bill Clinton.
In a break from its traditional monthly board meetings, early in the summer the board started convening by phone each Friday. In recent weeks it has added several more weekly teleconferences to discuss how GM should approach the liquidity option.
On Friday, GM said it is pushing ahead with new cost-cutting measures. It said three plants in the U.S. and one in Ontario, Canada, would extend their normal two-week holiday shut-downs into January. It also said it would close down an Ontario truck plant sooner than it had planned.
GM also confirmed it is ending leases on two of the five remaining corporate jets in its fleet. The move comes after Mr. Wagoner and Detroit's two other auto CEOs were chastised in Congress for flying corporate jets to meetings this week in which they asked for billions of dollars in public assistance.
"We understand the symbolic issue of people showing up in Washington in corporate jets," GM spokesman Tom Wilkinson said. "We're very sensitive to that."
Mr. Wagoner and the chief executives of Ford Motor Co. and Chrysler LLC were in Washington hoping to get $25 billion from the $700 billion fund administered by the Treasury Department for troubled financial institutions, or to persuade Congress to accelerate the release of $25 billion in loans that had already been pledged to Detroit through an Energy Department fuel-efficiency program.
Mr. Wagoner, Ford's Alan Mulally and Chrysler's Robert Nardelli told lawmakers they have been restructuring their companies and need bridge loans to carry them through until the economy recovers. Mr. Wagoner asked the government for $10 billion to $12 billion in immediate funding.
All three expressed concern that a bankruptcy filing by any one of their companies could cause a collapse of the others. Because the companies share suppliers, one maker's failure could bring down the supplier network, they say, impacting one or both of the others. They also point to studies showing that consumers would be unwilling to buy cars from bankrupt auto makers, out of concern that warranties may not be honored or spare parts could become unavailable.
Lawmakers were skeptical that the companies had taken the tough steps to put their companies on the road to profitability. After enduring two days of harsh criticism, the Detroit CEOs were told to come back by Dec. 2 to describe how they'd use taxpayer funds to become "viable."
On Friday, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said in a letter that auto makers must provide "a forthright, documented assessment" of how much cash they need to become stable for the long term. They also said the companies, if granted loans, must make the government senior to all other creditors, meet fuel-efficiency targets, limit executive pay and offer warrants to allow taxpayers to profit if the companies recover.
Some in Congress remain convinced that bankruptcy is a possible avenue. Republican Sen. Bob Corker of Tennessee, a member of the Senate Banking Committee, said Republican senators have been discussing a so-called prepackaged bankruptcy, in which creditors agree to restructure debts before a company seeks court protection.
Companies sometimes are able to use such an option to avoid long stays in bankruptcy court. Bankruptcy experts warn, however, that a bankruptcy proceeding for a large company such as GM could get bogged down because of its complex union and dealership contracts and array of creditors.
-- John D. Stoll, The Wall Street Journal
(Sharon Terlep and Josh Mitchell contributed to this article.)
