What if GM Bondholders Got Cars?

Some big bondholders, holding about 20% of the $27 billion, are represented by a group that calls itself the Ad Hoc Committee of General Motors Bondholders and have retained an attorney.

By contrast, individual bondholders, who number in the thousands, are not represented. However, their support for the restructuring plan is necessary because the U.S. Treasury has determined that about 90% of the bondholders need to accept the offer in order for GM to avoid bankruptcy.

In that regard, while it is conceivable that Martin's suggestion that new cars be offered could potentially ease the path to a deal, the obstacles -- including the large number of bondholders and the short amount of time -- are plentiful; the Treasury has shown no inclination to make changes, and the widespread consensus view is that GM will be forced to file for Chapter 11 bankruptcy.

Even Jim Graves, a Celebration, Fla., software developer who is a member of the Main Street Bondholders, has doubts about accepting a car in lieu of financial assets. Graves owns about $100,000 worth of GM bonds, which he acquired starting in April 2008; his mother, a retired GM employee, also has $100,000 worth.

Graves says his mother suggested his purchase of the bonds, and he liked the relatively high yield. Now, he says, "No one has explained to me the rationale where the government will forgive ($15.4 billion) and take 50% of the stock, while the bondholders will forgive $27 billion and take 10%."