The Obama administration is preparing to steer General Motors into bankruptcy next week, sources tell the Washington Post. The restructuring plan, which aims to shrink GM and turn it into a globally competitive automaker, will bring the company an extra $30 billion in federal loans, for a total of $45 billion in government aid. The government has indicated it will take a stake of some 50% of the firm.
UAW reached a deal with GM yesterday to cut labor costs. Bondholders, however, have balked at a survival plan that would give them just 10% of the firm in return for forgiving $27 billion in debt, causing government officials to decide bankruptcy is the only option. Chrysler may emerge from bankruptcy protection as soon as the next week. The speed with which it has negotiated the process is believed to have made the administration more confident about sending GM down the same road.