March 31 (Bloomberg) -- General Motors Corp. is seeking a “clean balance sheet” and recruiting directors as its new chief executive officer and chairman accelerate plans to keep the largest U.S. automaker out of bankruptcy.

GM must cut debt and improve cash flow, and likely will have to cut more jobs and shut more plants, CEO Fritz Henderson said today in Detroit at his first news conference since succeeding Rick Wagoner, who was asked to step aside by President Barack Obama’s auto task force.

Savings and other financial goals are “moving targets at the moment” amid one of the biggest challenges in GM’s 100-year history, said Kent Kresa, who became nonexecutive chairman upon Wagoner’s exit. Directors will deal “with these things at a really extensive board meeting scheduled for this weekend.”

The comments by GM’s two top leaders lent urgency to their quest to “fundamentally restructure” the company in 60 days, the deadline set yesterday by Obama as his administration put off a decision on new emergency loans. Obama said bankruptcy is a possibility should Detroit-based GM fail to revamp itself.

“We’ll get it done in court or we’ll get it done out of court,” Henderson, 50, told reporters. “But we will get the job done.

Proving Viability

He said a “clean balance sheet” is crucial so GM can prove that it’s viable, a U.S. requirement to keep an initial installment of $13.4 billion in federal aid. GM had sought as much as $16.6 billion more.

Investors reacted with pessimism for a second straight day, sending GM to its biggest decline since October even as broader stock indexes advanced. GM bonds fell, and the cost of insuring them against default increased.

GM must shrink $27.5 billion in debt that bondholders have been reluctant to exchange for equity and $20.4 billion in obligations to a union-run health care fund. A bankruptcy might make recoveries for bondholders and the United Auto Workers more difficult.

Bondholders doubt a debt exchange will succeed outside of bankruptcy because there isn’t enough time under the Obama administration’s 60-day deadline, according to a person familiar with the thinking of the committee representing creditors.

Too Tight

A prepackaged bankruptcy is more likely to work in slashing Detroit-based GM’s debt, said the person, who declined to be identified because the discussions are private. The deadline is too tight to get enough bondholders to swap their debt for equity voluntarily, the person said.

If GM proposes a deal that the bondholder committee supports, a prepackaged bankruptcy would be achievable, the person said. While the committee doesn’t represent two-thirds of the bonds GM is trying to exchange, enough investors have indicated they’d back the panel’s decision to make a prepackaged bankruptcy attainable, the person said.

Henderson said GM needs to cut more deeply than its planned 22 percent slash in so-called structural costs in North America to $26.3 billion from 2007’s level.

While he said he doesn’t have a new goal, the reductions probably will require more factory closings and job cuts. GM’s 2009 plans now call for eliminating 47,000 jobs globally, idling 5 assembly plants in the U.S. and shedding thousands of dealers.

Pressure on Sales

A softening U.S. economy that is shredding jobs and consumer confidence adds to GM’s difficulties. GM may say tomorrow that March domestic sales plunged 48 percent, based on the average estimate of 7 analysts surveyed by Bloomberg. This month’s industry sales may be the lowest since December 1981.

Remaking the 11-member board is Kresa’s priority while Henderson reshapes operations, and the new chairman said today that he already has one candidate, whom he wouldn’t identify. Obama’s auto task force has directed that GM must have a new board majority.

Kresa said he hopes to present a slate of six nominees by GM’s annual meeting in August. “New ideas” are a necessity, he said.

Henderson is the board’s choice to run GM, and he isn’t acting on an “interim” basis, said Kresa, 71, a former CEO of Northrop Grumman Corp. who joined the automaker’s board in October 2003. He said GM hasn’t been moving “fast enough” on restructuring and is going to increase the tempo.

‘Too Slow’

Obama’s task force agreed yesterday with Kresa’s assessment of GM’s pace. “While the company has made meaningful progress in its turnaround plan over the last few years, the progress has been far too slow,” the panel said.

GM fell 76 cents, or 28 percent, to $1.94 at 4:01 p.m. in New York Stock Exchange composite trading. That was the worst performance among the 30 stocks in the Dow Jones Industrial Average, which rose 1.2 percent.

Henderson said today that GM is working to determine the future of its Hummer sport-utility vehicle brand, for which a decision originally was expected by today as the company pursues a sale. Also under review is the Saturn division, which may take longer to resolve, Henderson said.

GM may have to lower costs so it can break even when U.S. vehicle sales are as low as 10 million to 10.5 million, said John F. Smith, group vice president for product planning. The automaker’s previous break-even target was for U.S. sales of 11.5 million to 12 million units.

GM doesn’t plan to eliminate more brands than Saturn, Saab and Hummer at this point and probably wouldn’t in bankruptcy, Smith said.

Sales of cars and light trucks in the U.S. last year fell 18 percent to 13.2 million. GM’s share of the domestic market dropped to 22.3 percent from 23.7 percent in 2007.

New Goals

Obama said yesterday that GM creditors, shareholders, workers, dealers and suppliers will be expected to make more sacrifices. The Obama rescue plan didn’t specify cost-cutting targets that GM has to make. The automaker will work with the task force to identify the new goals, Henderson said today.

GM’s 8.375 percent notes due in July 2033 lost 3 cents to 13 cents on the dollar, yielding 64 percent, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority.

Credit-default swaps on GM bonds rose for a second day on concerns the automaker would be forced into bankruptcy. The price climbed 2 percentage points to 83 percent upfront, according to broker Phoenix Partners Group. That’s in addition to 5 percent a year for five years, meaning it would cost $8.3 million initially and $500,000 annually to protect $10 million of the automaker’s debt.

To contact the reporters on this story: Jeff Green in Detroit at jgreen16@bloomberg.net; Doron Levin in Detroit at dlevin5@bloomberg.net

Last Updated: March 31, 2009 16:24 EDT