Two workers attach the grill and bumper assemblies to a new Chevrolet Camaro on the assembly line at General Motors of Canada’s Oshawa Car Assembly plant on May 22.

Chrysler LLC’s swift bankruptcy process will give consumers confidence that General Motors Corp. would also emerge quickly if it needs to seek court protection, a person familiar with the matter said.

Chrysler’s May sales were similar to those in April, showing consumers have taken President Barack Obama at his word that he intends for a retooled company to survive, the person said. That leaves consumers feeling more optimistic that if GM goes through a similar process, warranties and service will be provided, the person said Tuesday.

GM faces a June 1 deadline to achieve a swap of bondholder debt for equity and to win concessions from the United Auto Workers, or file for bankruptcy as Chrysler did. The person declined to speculate as to whether GM would need to file for bankruptcy, an outcome the automaker has called “probable.”

“The government has showed that it’s going to put its muscle behind this,” said George Magliano, director of automotive research for IHS Global Insight Inc. in New York, in a Bloomberg Television interview Tuesday. “They don’t want a long bankruptcy. They want to get it in, get it out to minimize the impact of a long bankruptcy.”

US Bankruptcy Judge Arthur Gonzalez in New York has scheduled a hearing Wednesday on Chrysler’s proposed sale to a group led by Italian automaker Fiat SpA.

US ownership

GM’s equity would be majority owned by the US Treasury once the automaker’s restructuring plan is in place, said the person familiar with the discussions, who wouldn’t estimate the government’s ownership percentage in the Detroit-based company. The Canadian government also would have an equity stake, the person said.

The US and Canadian governments may have equity ownership of as much as 69 percent. GM has proposed giving bondholders a 10 percent equity stake in the reorganized company and current shareholders 1 percent. The company also has agreed to provide as much as 20 percent of shares to a health-care trust fund for union retirees.

Government loan

A bankruptcy proposal being prepared by the US would have the government lend GM about US$30 billion, with Canada adding about $9 billion, the Washington Post reported, citing unidentified people. Together, the countries would own almost three-fourths of GM, the newspaper said.

The Wall Street Journal, also citing people it didn’t identify, said the US government may own as much as 70 percent of the automaker, with the UAW holding 17.5 percent.

US ownership would be for the shortest period of time possible and, as a stockholder, the government would participate as minimally as would be responsible, the person familiar told Bloomberg. No government employees will serve on GM’s board.

Former GM Chief Executive Officer Rick Wagoner had said that bankruptcy should be avoided. GM, in its February 18 restructuring plan for the government, cited a study saying 80 percent of consumers wouldn’t buy a car from a bankrupt company.

Wagoner said as recently as March 17 that a bankruptcy “might not work.” He was forced out by the Obama administration later that month.

GM’s complexity

A possible bankruptcy at GM, should one become necessary, will be a bit longer than that of Auburn Hills, Michigan-based Chrysler because of GM’s complexity, the person said. Obama hasn’t yet made a decision on how much debtor-in-possession financing GM would get in bankruptcy, and the government will provide adequate working capital during any Chapter 11 reorganization, the person said.

The likelihood of bankruptcy has become greater over time, the person said, while declining to speculate on whether or where a filing may occur. GM’s bankruptcy would be longer than Chrysler’s because it is a bigger company with international operations and with publicly held equity and debt, the person said.

GM tapped $4 billion more in US aid last week to push its total to $19.4 billion. GM also won a union agreement to cut the payment of stock to the United Auto Workers healthcare trust by 55 percent, giving the biggest US automaker more equity to spread among creditors, including the government.

Health fund

The health trust fund will receive 17.5 percent of the shares in a reorganized GM, along with $6.5 billion in preferred stock that pays a 9 percent dividend and a $2.5 billion note to be repaid in installments until 2017, according to a UAW document obtained by Bloomberg.

The fund also would get 2.5 percent of GM’s stock should shares reach $75, according to the UAW document.

GM’s new stock contribution shrinks its earlier plan to send as much as 39 percent of the equity to the fund to cover retirees’ medical bills. GM wants to issue 60 billion shares to pay the UAW, the government and bondholders in exchange for reducing debt.

GM’s offer to swap its $27 billion in debt for a 10 percent equity stake by bondholders expired Tuesday at 11:59 p.m. in New York. An ad hoc committee of institutional GM bondholders called GM’s April 27 offer “neither reasonable nor adequate.”

Source: Bloomberg