GM deadline crucial

New York -- The U.S. Treasury Department could stop financing General Motors Corp.'s restructuring, forcing the automaker to liquidate, if a sale of GM's best assets is not approved by July 10, President and CEO Fritz Henderson testified Tuesday in U.S. Bankruptcy Court.

Emphasizing the deadline puts pressure on the court to endorse the sale quickly. The Obama administration set it as a way to ensure that the sale, with so many participants, doesn't fall apart, a person familiar with the matter said. But it is unlikely that the administration would push GM into liquidation, absent a major setback, given that it has agreed to invest $50 billion in the automaker's rescue.

During bankruptcy proceedings earlier this month, Chrysler LLC reiterated that it had a firm government deadline to sell its good assets to Italy's Fiat SpA, which helped keep the case on track for a speedy emergence of the new Chrysler Group LLC. Like Chrysler, GM is using Section 363 of the Chapter 11 bankruptcy code, which allows it to divide its assets and sell the best to form a new GM; the bad assets remain in court as part of the old GM to be liquidated.

Henderson said Tuesday it will cost an estimated $1.2 billion to sell and liquidate the automaker's bad assets and cover environmental issues. That's up from an earlier estimate of $950 million, money needed to close dealerships, cover asbestos and product liability claims, and dispose of shuttered facilities.

Henderson testified for six hours and faced questions from a parade of lawyers representing creditors, consumers, union retirees and others opposed to GM's plan. The objectors, who risk seeing lawsuits, claims and benefits left behind in bankruptcy court, want the judge to force GM to give them a better deal. They pose the largest obstacle to a new GM emerging from bankruptcy largely debt-free.

U.S. Bankruptcy Judge Robert Gerber did not rule on any of the objections, and testimony is expected to continue today.

While the government could stop funding GM, "logically there wouldn't be strong motivation to stop funding given its investment in GM and the progress made to date," GM spokeswoman Renee Rashid-Merem said.

The objectors Tuesday tried to show that GM could have chosen other bankruptcy paths that would have given creditors and others a greater voice. Lawyer Mark Salzberg, representing small bondholders, asked Henderson if GM and the Treasury chose Section 363 because it provided less opportunity for creditors to object than in a traditional plan of reorganization.

"I don't recall that discussion," Henderson said.

Other lawyers squeezed Henderson for details on the leadership of the old GM, which will consist of liabilities, unwanted factories and other debts. Henderson said Al Koch, the automaker's chief restructuring officer, is actively recruiting board members for the old GM. Koch, vice chairman and managing director of restructuring firm AlixPartners, will handle the sale or liquidation of the old company's assets. He testified Tuesday that the winding down of the old GM could take two or three years and some aspects could take longer.

Henderson also said that once a new GM emerges from bankruptcy court, it will still be called General Motors.

The hearing drew so much interest that the crowd spilled into another courtroom and a clerk's training room.

Outside the courthouse, motorists injured in crashes involving GM vehicles held a protest. The victims and their relatives, who have pending lawsuits against GM, likely will have no opportunity to collect damages if Gerber, as expected, approves the asset sale. The judge's approval could come this week.

The protesters, along with a parade of union workers chanted "save our benefits," adding drama at the start of the day.

"GM is trying to weasel out of its obligations," said Missouri resident Terry Cole, 53, who sued after a fiery accident two years ago involving his Cadillac Escalade left the wheelchair-bound man with third-degree burns. The lawsuit was put on hold after GM filed for bankruptcy June 1.

GM on Friday agreed to cover future liability claims no matter when the vehicles involved were built, but liability claims pending before GM filed for bankruptcy are still likely to be classified as bad assets and left behind in bankruptcy. "They want to leave us in the gutter," Cole said. "I can't believe the president would let GM be this immoral."

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