General Motors set for bankruptcy

General Motors looks set to follow fellow “big three” US car maker Chrysler into bankruptcy after failing to get the bondholder support it needs to reduce the firm’s crippling debt.

The Detroit-based manufacturer had hoped to agree a deal in which US$27bn (€19.4bn) in unsecured debt was swapped for 10% stake of the company’s stock.

Bondholders rejected the move, leaving GM with little option other than file for bankruptcy protection. A spokesman for the car maker said the board of GM would meet later this week to consider its next move.

The struggling car maker officially has until Monday to come up with a viable restructuring plan under a deadline set by the White House.

The firm has already received almost US$20bn (€14.4bn) in loans from the US government.

However, President Barack Obama previously indicated that any further money would be conditional on concessions from bondholders and unions in a bid to reduce GM’s costs.

The plan to convert debt into stock was rejected by both large bondholders, such as banks, and smaller and private investors.

They were unhappy with only receiving a 10% stake for the amount they are owed. GM needed 90% support for the scheme to proceed.

In a statement today, GM spokesman Tom Wilkinson said: “The principal amount of notes tendered was substantially less than the amount required by GM to satisfy the debt reduction requirement under its loan agreements with the US Department of the Treasury.”

The development leaves GM with few options other than Chapter 11 bankruptcy. The move will allow the firm to restructure without having to enter into liquidation.

Chrysler filed for Chapter 11 last month while it continues to hammer out a deal with Italian car maker Fiat.

Lawyers for Chrysler will attend court today to ask a bankruptcy judge to allow it to sell the bulk of its assets to Fiat as part of the deal.