AT A GLANCE: GM Prepares For Bankruptcy Protection

AT A GLANCE: GM Prepares For Bankruptcy Protection

THE NEWS: General Motors Corp. (GM) plans to file for Chapter 11 bankruptcy protection in the southern district of New York at 8:00 a.m. on June 1. It will be the largest-ever industrial filing in the U.S. , with the pre-packaged plan leaving the federal government in control of a downsized "New GM" facing the weakest auto market conditions in a generation. The U.S. administration's auto task force has already strong-armed provisional backing from a majority of bondholders and unions representing staff in the U.S. and Canada., moves likely to ease its passage through court. The task force will also install restructuring expert Al Koch and a team from AlixPartners LLP to work alongside GM CEO Fritz Henderson, while the majority of the company's board will also be replaced.

WHAT HAPPENS NEXT?: A bankruptcy filing by the world's second-largest auto maker will have repercussions across the global auto sector and, by providing an acid test of the administration's industrial policy, reverberate in broader financial markets. The judge appointed to oversee the case in a court already handling the bankruptcy of Chrysler LLC is viewed as crucial in determining whether the task force plan to have GM exit protection within about 90 days is, in fact, realized. While many elements have been "pre-packaged," the treatment of bondholders could still see challenges to the plan in court, especially from the large retail base. Unsecured creditors are slated to receive 10% of the common equity in the new GM, versus 17.5% for the health fund run by the United Auto Workers union, with the balance held by the government.

The most crucial question for GM is how it plans to accelerate the operational turnaround and revise the planning forecasts rejected by the task force at the end of March. The operational plans will have a knock-on effect for the distressed auto supplier sector, which supplies around 70% of the content by value to manufacturers. The slide in global vehicle sales, most notably in the U.S., has left many in, or on the brink of, bankruptcy, or already under court protection.

Other issues include the fate of GM's pension obligations and the role of the Pension Benefit Guaranty Corp.; the relationship of GM and its European operations following a tentative deal to sell a majority stake to a consortium led by parts maker Magna International Inc. (MGA); treatment of creditors to Delphi Corp., GM's former parts unit; and the cost of culling its dealer network and the higher number of employee buyouts outlined last week.

THE MARKETPLACE: U.S. light vehicle sales are expected to fall to around 10 million this year from 13.1 million in 2008 and 16.1 million in 2006. With GM and Chrysler both cutting back production further, rivals are stepping up output to take advantage of negative customer perceptions of bankrupt auto makers. U.S. auto production is expected to be higher in the second half of the year, reversing its usual historical pattern. May auto sales data is released June 2.

For more Dow Jones coverage, please see:

WSJ: GM Bankruptcy Filing Seen 8AM Mon In NY's Southern District - Source

GM Filing Will Trigger Settlement Of $3 Bln In CDS Deals

WSJA(6/1) Gains In A GM Bankruptcy

WSJA(6/1) GM Bondholders Back Debt For Equity

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; [e-mail]