Chapter 11 threat looms over Chrysler, GM

Fears of further plant closures and other cuts which could cost thousands of jobs are spreading through General Motors Corp and Chrysler LLC as the companies approach a 17 February deadline to show the government they can be viable.

Failing this, the US government is likely to place the two Detroit companies in Chapter 11 bankruptcy protection in an effort to safeguard the $17.4-billion in loans extended to the two ailing car manufacturers.

The move, which is one of a range of options being considered by government advisers, would ensure that taxpayers would be paid out first in the event that either company actually collapsed.

Chapter 11 is designed to allow a company to undertake drastic restructuring measures while protecting it from its creditors. However, both companies have in the past said that a move into Chapter 11 would destroy them, as customers would lose confidence and many suppliers would cease working with them.

Both companies' restructuring plans are presumed to include concessions from bondholders and the United Auto Workers union. GM's plan will include shuttering additional factories as well as salary and job cuts.

Both GM and Chrysler must prove to the government that they are able to repay the federal loans that are keeping the companies afloat in the worst US auto sales climate in 26 years. GM has received $9.4 billion and expects to get $4 billion more, while Chrysler has received $4 billion and is hoping to get another $3 billion.