Feared collapse averted, for now

Detroit: General Motors Corporation and Chrysler LLC have averted a much-feared collapse, for now.

But the real work starts now - a wrenching restructuring that mirrors many of the steps typically undertaken in a Chapter 11 bankruptcy reorganisation.

Both companies are likely to face high hurdles as the restructuring targets laid out in the $17.5 billion (Dh64.2 billion) federal rescue package for the automakers include massive cuts in labour costs, a two-thirds reduction in debt that involves convincing creditors to swap debt for equity and possible shareholder losses.

Already many of the stakeholders, particularly the powerful United Auto Workers union and the bond holders, are baulking at the concessions they would be required to make.

The UAW said it will appeal to the incoming administration of President-elect Barack Obama to reverse the steep concessions required from workers, while a group of GM bondholders has hired a law firm to negotiate with the automaker.

GM and Chrysler have until March 31 to complete the negotiations, but winning the required cuts may prove extremely difficult outside the forceful framework of a bankruptcy court, analysts said.

On the other hand, if successful, it would help the companies reorganise without the painful stigma of a failure, they added.

"One key difference between those terms and being in bankruptcy is that consumers, who are really going to jump start this at the end of the day, would look at a company in bank-ruptcy quite differently," said Thomas Nishoff, co-leader of law firm Dykema's auto industry team.

"If you diminish the revenue side of the equation, at some point you can't cut costs anymore."

A key stipulation in the aid package for the cash-strapped automakers is that the loans could be called back if they cannot meet all the conditions and prove they are viable by March 31.

Insolvency

While the automakers are allowed to deviate from some of the concession targets, they still must achieve long-term viability - measured as positive net present value - with or without deviations.

This highlights that the risk of a bankruptcy for either GM or Chrysler is not entirely out of the picture, JP Morgan analyst Himanshu Patel said. He added that the next administration could push for a bank-ruptcy at Chrysler.

GM chief Rick Wagoner said he was confident they would meet the conditions attached to the loans.