Chrysler's woes could turn out to be a blessing for General Motors Corp., paving a clearer path for the troubled company to avoid bankruptcy.
With less than a month before its government-imposed deadline to restructure, GM is still attempting to reduce obligations to the United Auto Workers union and to holders of billions of dollars in the automaker's bonds.
GM Chief Executive Fritz Henderson said in an interview Monday that he expected a deal with the union, but he admitted that the bondholders posed a bigger hurdle.
Negotiations with those creditors have gotten nowhere, and until late last week, signs pointed to the possibility that GM would have no choice but to appear before a judge to wipe away its $27 billion in debt.
Then Chrysler went into bankruptcy.
By pushing the smaller automaker into Chapter 11, restructuring experts argue, the Obama administration sent a strong message to bondholders that the nuclear option is indeed on the table.
Since the GM bonds those groups hold are unsecured by collateral -- unlike in the case of the owners of secured Chrysler debt, who could recover money through asset sales -- they stand to lose nearly the entire value of their investment if forced to go to court.
"I now believe it is more probable that a GM filing can be avoided," said Van Conway, of restructuring firm Conway, MacKenzie and Dunleavy in Birmingham, Mich. "There was a feeling by some that the government was bluffing on bankruptcy. But now it's clearly real."
The bankruptcy threat makes it more likely that the thousands of individuals, pension funds and investment firms that hold those bonds would be willing to accept the offer GM tendered last week: 225 GM shares for every $1,000 in debt, amounting to about a 10% equity stake in the company.
What's more, GM says that it doesn't require unanimous participation in that deal to make it successful. Instead, 90% have to accept the swap to avoid a filing.
"These people have a fiduciary responsibility to decide what will get the most value," said Dennis Virag, president of the Automotive Consulting Group. "Going to court could net them nothing."
Despite that threat, some bondholders continue to insist that the GM deal isn't sweet enough and that they're being asked to take a larger haircut than the UAW.
The union is being offered a 39% stake in GM, second only to the more than 50% that would go to the federal government.
