GM Faces Supplier Contracts Ahead Of Exit From Bankruptcy
02 Juli 2009 - 11:43PM
Dow Jones News
General Motors Corp. (GM) has to settle and restart billions of
dollars in supplier contracts in what could be a key test of plans
for a smooth bankruptcy exit, a person familiar with the matter
said.
The auto maker needs its bankruptcy judge to approve the sale of
its "good" assets to the U.S. government, a union-run health trust
and others by July 10, to retain access to federal funding.
GM must resolve supplier liabilities to the satisfaction of the
court and those suppliers before business gets under way at the
"New GM," according to the person, with the expectation that some
may challenge GM's valuation of past debts.
The health of GM suppliers has remained a focus throughout the
Chapter 11 proceedings, as many auto suppliers are either on the
brink of bankruptcy or already in protection.
GM Chief Executive Fritz Henderson has said more suppliers are
at risk of going under if GM fails to exit bankruptcy and return to
more normal operations soon.
The company plans to roll over the majority of its supplier
contracts to the new company, and the terms of those deals wouldn't
change after its exit from bankruptcy, the person said.
However, before the new contracts can begin, GM must settle any
bills incurred before or during bankruptcy. A number of suppliers
top the list of GM's biggest unsecured creditors, with some saying
the auto maker owes millions.
GM owes $111 million to bankrupt parts maker Delphi Corp. (DPH)
and $45 million to Lear Corp. (LEA), which said Wednesday it plans
to file for Chapter 11, according to court documents.
Suppliers can appeal if they feel GM isn't giving them the
proper amount. So far, the person familiar with the matter said,
few suppliers have disputed GM's cost tallies, though there is an
expectation that some eventually will.
Chrysler Group LLC, which emerged from an expedited bankruptcy
last month, managed to settle past debts and restart supplier
contracts with the new company with relative ease.
GM entered bankruptcy protection on June 1 and could emerge as a
new company - owned by the U.S. and Canadian governments, the
United Auto Workers and existing bondholders - sometime this
month.
-By Sharon Terlep, Dow Jones Newswires; 248-204-5532;
sharon.terlep@dowjones.com.