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Bankruptcy Leads Possible Plan for Struggling GM and Chrysler

WASHINGTON — The Obama’s administration’s leading plan to fix General Motors Corp. and Chrysler LLC would use bankruptcy filings to purge the ailing companies of their biggest problems, including bondholder debt and retiree health-care costs, according to people familiar with the matter.

The move would in essence split both companies into their “good” and “bad” components. The government would like to see the “good” GM to be a standalone company, according to an administration official. The “good” Chrysler would be sold to Fiat SpA, assuming that deal is completed, this person said.

GM and Chrysler have had bankruptcy attorneys devising plans for such a move in recent months.

GM looks increasingly like it will be forced into filing for bankruptcy protection, sometime in mid-to-late May, in a plan where the automaker breaks into two companies, the surviving entity a “new GM” that maintains key brands such as Chevy and Cadillac and some international units, say several people familiar with the situation.

A key ingredient is getting the UAW to agree to an entirely new labor contract, including major reductions in health-care benefits, according to several people involved in the matter. “That’s the No.1 wildcard here,” one of these people said Monday.

At Chrysler, bankruptcy would be used to force new labor contracts and rework debt deals with secured creditors. People working on Chrysler’s behalf say the deal is risky, because the company is still not convinced that it could survive even a short-term bankruptcy.

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