According to a lengthy report by the New York Times, the Treasury Department is directing General Motors to begin work on a bankruptcy filing by June 1. Based on sources close to the talks who were unable to officially discuss the process, the report outlines the "fast 'surgical' bankruptcy" of the automaker if GM is unable to reach an agreement with the UAW and bondholders to exchange some $28 billion in debt into equity in the automaker.

The plan, which needs to address every aspect of the company, aims to make the bankruptcy filing as quick and painless as possible so the General can avoid tarnishing its already damaged image and stem the sales slide experienced over the last six months. One consideration is to break up GM into two separate entities after the filing, which would bundle and separate the automaker's good and bad assets. The positive portions of the automaker would "enter and exit bankruptcy protection in as little as two weeks, using $5 billion to $7 billion in federal financing." The bad bits, including lackluster brands (Hummer, Pontiac, Saab and Saturn), bloated dealer networks, extra manufacturing capacity and health care obligations would be left in the "old" GM and liquidated over the course of several years.

President Obama's automotive task force has been in close contact with GM officials over the last week and those talks will continue into this week. And in an about-face from the Wagoner administration, GM's new CEO, Fritz Henderson, has begun to indicate that bankruptcy is a strong possibility, going so far as saying during a Canadian Broadcasting Corporation interview, "If we need to resort to bankruptcy, we have to do it quickly."

[Source: NYT | Image: Bill Pugliano/Getty]