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GM Makes Further Concessions on Liabilities to Smooth Sale Path

By Christopher Scinta and Linda Sandler

June 30 (Bloomberg) -- General Motors Corp., the largest U.S. automaker, is making last-minute concessions to opponents of its planned asset sale that leave the new company with liabilities it could have erased in bankruptcy.

The Detroit-based company amended the sale agreement to clarify that it will take on some tax and workers’ compensation claims, maintain utility service to plants being left behind and accept future product liability and “lemon law” claims. That should “significantly alleviate” objectors’ concerns, it said.

GM lawyer Harvey Miller said at today’s hearing in New York on the proposed sale before U.S. Bankruptcy Judge Robert Gerber that liability from any accident that occurs after the closing will be assumed by the new company. There hasn’t been any progress with resolving asbestos claims, he said, and those and other tort claims will remain with GM’s bankruptcy estate.

“GM initially sought to strip consumers of the right to sue its successor for defective vehicles already on the road, an unacceptable and unfair sacrifice,” Connecticut Attorney General Richard Blumenthal said yesterday in a statement praising the company’s decision to accept tort claims. “Consumers killed or crippled in a crash caused by a defective vehicle must retain the ability to hold the new GM responsible.”

If the company can overcome about 750 objections to the sale, it may follow rival Chrysler LLC’s path and win approval to sell most of its assets, putting President Barack Obama’s administration almost a month ahead of schedule in its plan to reshape the U.S. auto industry.

Only Buyer

GM is in court today asking Gerber in Manhattan to approve the sale to the Treasury-funded Vehicle Acquisition Holdings LLC, which it says is the only potential purchaser. The administration set a goal of completing the sale 60 to 90 days from GM’s June 1 bankruptcy.

The hearing is to include testimony from GM Chief Executive Officer Fritz Henderson and Harry Wilson, an auto task force adviser. It may take several days. Court approval would leave GM and the Treasury ready to close the deal in little more than a month from the filing date. GM is operating in bankruptcy with $33.3 billion in loans from the U.S. and Canada.

“The way it’s being done in GM, and was done in Chrysler, is very time efficient,” Van Conway, president of the turnaround advisory firm Conway MacKenzie Inc., said yesterday in a phone interview. “The future could be extremely bright. They’ll be hiring and building new plants some day, though not in the near future. I think it will prove to be a good use of taxpayer money.”

Gonzalez Rulings

Both GM and the government said Gerber should overrule the objectors, citing rulings by Arthur Gonzalez, the Chrysler bankruptcy judge. Gonzalez on May 31 approved Chrysler’s sale to the U.S. and Canadian governments, a United Auto Workers benefit trust and Italian automaker Fiat SpA.

“These objectors do little more than rehash the same argument rejected by Judge Gonzalez in Chrysler’s bankruptcy,” assistant U.S. attorneys including Matthew Schwartz wrote in a June 26 brief. “The government fully supports the 363 transaction, which, if consummated, will facilitate a rebirth of the American automobile industry.”

A 363 sale is named for the U.S. bankruptcy code section on asset sales.

The government conceded Treasury’s role as lender and sponsor of the purchase is “extraordinary,” saying it’s also “squarely permitted by well-settled precedent.”

An appeal of Gonzalez’s decision in Chrysler was rejected June 9 by the U.S. Supreme Court.

Better Payout

GM said objections, including ones from unionized retirees, tort claimants and individual bondholders, should be rejected as the sale to the Treasury is the only option and the objectors aren’t seeking to block it, only to get a better payout from the transaction.

“Notably, the minority bondholder objectors simply ignore the unassailable legal analysis and substantive findings in Chrysler,” GM lawyers from Weil Gotshal & Manges wrote in response to the objections.

Individual GM bondholders have said the company is improperly using the bankruptcy asset-sale process and the company should take more time and propose a complete Chapter 11 reorganization plan on which creditors could vote.

Nancy Rapoport, a law professor at the University of Nevada at Las Vegas, said many creditors don’t have the sophistication or money to protect their rights in a sale.

“They don’t want the expense and the time of doing a plan,” she said. “I think it’s ridiculous.”

Tort Claims

Existing tort law claims against GM will still be funneled to the bankruptcy estate, according to an attorney for the tort claimants.

About 300 tort claimants with an estimated $1.25 billion in claims against GM withdrew a request for official committee status in the case before a June 25 hearing on the motion. Gerber refused to appoint a “tort czar” to address product- liability and asbestos claims in the GM case.

The company will leave behind 12 plants and associated real estate in Delaware, Ohio, New York, Indiana, Pennsylvania, Virginia and Michigan, as well as $950 million in cash to fund a wind down of “Old GM.” GM said yesterday it will shed a 50 percent stake in a factory it operates along with Toyota Motor Corp. near San Francisco Bay.

The case is In re General Motors Corp., 09-50026, U.S. Bankruptcy Court, Southern District, New York (Manhattan).

To contact the reporter on this story: Christopher Scinta in New York at cscinta@bloomberg.net.


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