A hearing to determine General Motors' fate will continue Wednesday, with the automaker expected to face more objections to its plan to sell the bulk of its assets to a new company and quickly emerge from bankruptcy protection.
Attorneys, bondholders, consumer groups and others packed a Manhattan courthouse Tuesday to hear about five hours of testimony by GM CEO Fritz Henderson, who said the No. 1 U.S. automaker's sale is necessary to get GM back on its feet quickly. Henderson cautioned that the government could walk away from the deal if the sale doesn't close by July 10.
Parties are expected back in court at 8 a.m. EDT Wednesday.
General Motors Corp., whose June 1 filing for bankruptcy protection was the fourth-largest in U.S. history, is hoping to avoid a lengthy sale hearing that could postpone its emergence from Chapter 11. Last month, objections from a group of bondholders and others dragged out rival Chrysler LLC's sale hearing for three days.
Despite U.S. Judge Robert Gerber's urging for the attorneys to keep their arguments concise and to avoid redundancies among their questioning, the Tuesday hearing dragged on as a parade of lawyers made their way up to the podium to question Henderson.
"I think people have forgot why we're here and what we have to accomplish," Gerber said sharply after several tedious hours of testimony. "I'm not going to deny anybody due process, but I expect the questioning to be more focused."
Gerber appeared particularly annoyed when Henderson and other officials were questioned by Oliver Addison Parker, an attorney from Florida who claimed to own $5 million in GM bonds. Parker spent much of his time at the podium searching for documents, at times asking opposing counsel to provide them, prompting Gerber to put his head in his hands.
"I don't think it's fair to ask the others and the court to fetch for you," Gerber said tersely while Parker was crossexamining Albert Koch, GM's chief restructuring officer.
At the same time, Henderson wasn't fazed by his lengthy stay on the stand, answering questions quickly and directly for the most part, and making eye contact with the attorneys.
When asked about the current condition of GM, Henderson testified that the automaker's June sales were "slightly better than expected" excluding fleet sales, which he partly attributed to the company's progress toward a quick exit from Chapter 11.
In addition to Henderson and Koch, J. Stephen Worth, one of GM's restructuring advisers for the past year, also testified Tuesday.
Under a government-backed deal, GM will sell most of its assets to a newly created company, 60 percent owned by the U.S. government. The Canadian government will get a 12.5 percent stake while the United Auto Workers union will take a 17.5 percent share to fund its health care obligations. Unsecured bondholders receive the remaining 10 percent.
Existing GM shareholders are expected to be wiped out.
The remaining pieces of the company, including some closed plants, will become the "Old GM" and be liquidated.
GM hopes to emerge as a leaner company, less burdened by debt and labor costs as it faces a severe recession that has sapped car and truck sales. Automakers, which are due to report June U.S. sales on Wednesday, have seen sales fall 37 percent over the first five months of the year.
Lawyers, media and other spectators, along with a handful of people who claim they were injured as a result of allegedly defective GM vehicles, gathered outside the U.S. Bankruptcy Court for the Southern District of New York hours before the hearing's scheduled start Tuesday in a line that wrapped around the building.
Consumer groups and several individuals with product-related liability claims against the company are objecting to the sale because people with pending claims against GM will be forced to seek compensation from "Old GM," the collection of mostly unprofitable assets left over from the sale where there will likely be nothing left to pay their claims.
Early on in the hearing, Mark Salzberg, an attorney for a group of bondholders opposing the sale, questioned why GM would opt for a sale plan instead of a restructuring plan, charging that the automaker took that route to make it harder for its creditors to negotiate with the company.
But Harvey Miller, an attorney from GM, questioned the validity of the bondholder group's challenge, noting that it only has three members, one of which bought his bonds for just 2 cents on the dollar, while the other two spent no more than 20 cents on the dollar for theirs.
Besides the bondholders, a trio of labor unions who claim that their retirees stand to lose health care benefits are also trying to block the sale. Unlike the UAW, which brokered a deal for a stake in the company, those unions say they won't have anything to pay for retiree health care.
Henderson testified that retiree benefits for the three unions cost GM about $26 million a month.