GM shows signs that bankruptcy filing is coming

DETROIT -- The letters General Motors sent to 1,100 of its dealers telling them to close represent another strong sign the automaker will end up in Chapter 11 in two weeks, because GM has little clout to close dealerships unless it is in bankruptcy.

But in bankruptcy court, all contracts, including dealer franchise agreements, can be rejected or renegotiated. "You can't get this without bankruptcy," says Doug Bernstein, head of Plunkett Cooney's Banking, Bankruptcy and Creditors' Rights practice group. "You can't force these issues on all the related parties without bankruptcy."

Only months ago, GM said bankruptcy wasn't an option. Now, it seems almost inevitable.

In addition to the dealer letters and what it would take to enforce them, there are these signs that suggest Chapter 11 looms:

• Six top executives recently sold GM shares, even though they're worth only about $1. In bankruptcy, they'd be worth nothing.

• GM plans to pay suppliers earlier than expected, before a bankruptcy filing would freeze those accounts. Usually, troubled automakers delay payments, but paying sooner helps keep the fragile supplier network functioning. Otherwise, GM couldn't buy parts to operate under Chapter 11.

• GM is soliciting bids for brands it wants to unload, such as Saab, Hummer, Saturn and Opel. Getting bids is key to convincing the court that GM has done the homework that would give it a chance at a quick in-and-out bankruptcy, Bernstein says.

GM is working against a June 1 government deadline. By then, the car company must persuade its debt holders to forgive much of what it owes them, negotiate new labor contracts and trim its dealer network to better match its share of the U.S. new-vehicle market.