General Motors Corp has no choice but to sell its assets to a group led by the U.S. government if it is to survive, a lawyer for the bankrupt carmaker argued in bankruptcy court in Manhattan on Wednesday

There is no alternative; it is liquidation or this sale. And liquidation is Draconian, GM's lawyer Harvey Miller told U.S. Bankruptcy Judge Robert Gerber.

Saying that no one else had come forward with another offer to compete with the U.S. Treasury's and that no other entity could provide GM with as much bankruptcy financing, Miller urged Gerber to approve the sale.

The current transaction is the only option on the table, argued Miller, of the law firm Weil Gotshal & Manges.

Harry Wilson, a U.S. Treasury official working on GM's restructuring, seconded Miller's claim that the sale was GM's only option.

Wilson said the government would withdraw its portion of the $33 billion debtor-in-possession financing for GM if the sale does not close by July 10.

We cannot make an open-ended commitment, Wilson testified. At one point, it's better to cut one's losses.

He testified that last December the federal government was effectively the lender of last resort for GM, and estimated the automaker has received $10 billion in funding since its bankruptcy filing -- the bulk of it from the U.S. government.

Wilson said the government wants GM to stay in bankruptcy for only 30 to 40 days.

If the deal is approved, the New GM would be a company that would have the best parts of the old company, a less expensive workforce and much less debt.

The old GM, which would include unpopular brands and unneeded factories, would be sold off to the highest bidder.

The U.S. Treasury would provide $60 billion in financing to the new company, including a proposed $50 billion that would give the U.S. Treasury a 60 percent stake in the company.

The United Auto Workers union would gain a 17.5 percent stake; the Canadian government would own about 12 percent, and GM bondholders are expected to get about 10 percent of the new company.

A successful sale of GM's main assets would be the second big victory for the Obama administration's auto task force. It helped broker the sale of Chrysler LLC to a group led by Italy's Fiat SpA last month.

If GM wins court approval for its asset sale this week, the new company could be ready to make an initial public offering in 2010, a U.S. Treasury official testified on Wednesday. An IPO would allow the government to exit its investment in GM.

Opponents of the deal, including groups representing other union workers, consumers, auto dealers and asbestos claimants, argued that they would lose the ability to sue GM if the plan was approved.

A group of dissenting bondholders is designated to make their arguments at 9 a.m. EDT (1300 GMT) on Thursday, the last day of the three-days of scheduled hearings.

GM is asking Judge Gerber to approve a sale of its best assets just one month after filing for Chapter 11 bankruptcy.

At the beginning of Wednesday's hearing, lawyers for a group of dissenting bondholders asked GM restructuring adviser Bill Repko, of the investment bank Evercore, and Wilson, whether GM could have pursued a traditional reorganization rather than a speedy sale of its assets to New GM.

We could not find any reasonable measure of opinion from anyone ... who felt that General Motors could survive a traditional Chapter 11, Wilson told the court.

The case is In re: General Motors Corp, U.S. Bankruptcy Court, Southern District of New York, No. 09-50026.

(Reporting by Emily Chasan and Phil Wahba; editing by John Wallace, Matthew Lewis, Leslie Gevirtz)

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