The possibility of bankruptcy for General Motors (GM) and Chrysler is increasing as the US government's deadline for restructuring approaches, an auto- industry expert said.

"It's never been more possible for those two going bankruptcy," Kristin Dziczek, a senior project manager at the Center for Automotive Research, a nonprofit organization, told Xinhua in an interview on Tuesday.

On March 30, the US government gave GM and Chrysler 60 days and 30 days respectively to develop a new restructuring plan and gain further state aid.

"The government's intervention in the auto industry to Chrysler is given 30 days to marry Fiat with a little dowry of US$6 billion. And if that didn't work out, it's not clear what exactly will happen to Chrysler," she analyzed.

Obama's auto task force last month rejected Chrysler's Feb. 17 restructuring plan and gave it until May 1 to negotiate more concessions from unions and convince banks and hedge funds to trade debt for equity to strengthen a proposed alliance with Fiat. If the government approves Chrysler's revised plan, the company, which is already operating on a US$4 billion federal loan, would receive another US$6 billion next month.

"And it's not clear also if Fiat wouldn't wait until after the 30 days because the 6 billion dollars may not be great enough incentive to pick up Chrysler pre-bankruptcy. They may want to pick up just the parts they want in a fire-sale after bankruptcy happens," added the expert.

The New York Times reported on Monday that the Treasury Department is directing General Motors to lay the groundwork for a bankruptcy filing by a June 1 deadline, despite G.M.'s public contention that it could still reorganize outside court.

"GM had been a slightly different deal. They had been given some time to write a new plan and come up with a more realistic restructuring plan that would allow them to tap in more federal money for them to fund that. It may very well involve bankruptcy," said Dziczek.

"In fact, there are different forms of bankruptcy. There is chapter 7, which we call liquidation. You sell the company, you stop making cars and you're out of business. Then there is chapter 11, which is a reorganization bankruptcy," Dziczek explained.

"There is a special clause in chapter 11 called 363, allowing the company to slip itself into halves. One half where you put some of the productive assets there, so you may put some plants there, you may put some brands there," she continued.

"The other half you put some toxic bad stuff, that would be some pension would go, some health care liability, some of the brands that they want to shed, some of the dealerships that they'd like to shed. So what happens is the bad company gets a share of equity in the good company to fund its liquidation of the bad company. And the good company cares on. So it's a way of getting rid of past sins, a quick wash that allows the company to clear out past mistakes," she said.

Dziczek is optimistic about the future of the US industry, but anticipating a very difficult time for auto-makers in coming years.

"There are a lot of jobs that are insecure. There are only about 250,000 direct jobs at the Detroit three companies. But if you count how many people work in suppliers and transportation to those companies, it's 1.5 to 2.5 million jobs in the United States, " she said.

"We're at a very difficult time, and it will take a while," she added.

(Xinhua News Agency April 15, 2009)