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GM's last-ditch plan calls for U.S. control, extreme downsizing

DETROIT — In a bid to avoid bankruptcy, General Motors said Monday it will eliminate 2,600 dealers, 21,000 workers and four brands, including Pontiac — and leave the U.S. government owning at least half of the automaker.

The strategy would essentially formalize the government's control over one of the icons of corporate America. Combined, the United Automobile Workers and the government would own 89 percent of the century-old automaker, which is saddled with more than $62 billion in debt.

But the plan depends on persuading unsecured bondholders who have loaned GM $27 billion to forgive that debt in exchange for a 10 percent stake in the company, and enticing them to drop their debt claims won't be easy, bondholders indicated Monday. It is still possible that the company will be reorganized in bankruptcy court.

GM plans to dump Pontiac along with Hummer, Saturn and Saab — and place its future in the hands of Chevrolet, Cadillac, Buick and GMC.

"It's a pretty sad day," said Jack Nerad, executive editorial director at Kelley Blue Book.

By the time its restructuring is finished, GM expects to have only 38,000 union workers and 34 factories left in the United States, compared with 395,000 workers in more than 150 plants at its peak employment in 1970. Where once GM had a 50 percent share of the market for new vehicles in the United States, the company hopes to at least hang on to its current 18 percent share.

Analysts said even that could be optimistic. "There is still a huge risk for market share losses beyond what the company is forecasting," said John Casesa, an industry consultant.

If the company's many stakeholders can come to an agreement before a deadline at the end of May, GM said Monday it still would need to borrow $11.6 billion more from the U.S.

President Barack Obama's auto task force said Monday it "has made no final decision" on future investments in GM, which is already subsisting on $15.4 billion in federal loans. However, the task force called the new plan an "important step in GM's efforts to restructure its company."

The Obama administration, which has been heavily involved in GM's restructuring since rejecting its viability plan in February, brushed off suggestions it wanted to run GM's day-to-day affairs. The U.S. Treasury would have the right to appoint all of GM's directors, but the Obama administration said Monday that it would not seek any seats.

The plan — the third restructuring plan filed by GM since December — would leave current shareholders holding just 1 percent of the company.

The plan is centered on the debt-for-equity offering GM is extending to bondholders. At least 90 percent of holders of outstanding bonds must accept, the company said, or it will file for bankruptcy by June.

GM's announcement sent its shares up 21 percent to $2.04 Monday, meaning bondholders would get about 46 cents on the dollar. But that does not take into account dilution of GM's shares once the government and the union get their giant piece of the pie. Analysts estimated the value was closer to 5 cents on the dollar.

"The exchange offer that General Motors announced this morning must look to bondholders like something Tony Soprano dreamed up," said Shelly Lombard from Gimme Credit, an independent bond research firm. "It's pretty heavy-handed and doesn't offer much in the way of options."

A committee representing some of the company's largest institutional bondholders called Monday's offer "neither reasonable or adequate."

As GM laid out the proposal Monday, new agreements fell into place between Chrysler and its unions in the United States and Canada. The UAW's factory-level leaders voted unanimously Monday night to recommend that members approve concessions that could give a union-run trust 55 percent ownership of a restructured Chrysler as it also tries to avoid bankruptcy.

The Chrysler deal almost certainly will be the template for GM, although GM chief financial officer Ray Young said negotiations with the union had not yet resumed in earnest.

GM proposed Monday that the UAW take GM stock for at least half the $20 billion the company owes to a union-run trust that will assume retiree health care expenses starting next year.

Chrysler, which has borrowed $4 billion from the government, has been given until the end of this month to reduce its debt and to cut union costs. In addition, it has been asked to forge a merger with Italian automaker Fiat. The Treasury Department is trying to engineer the sale of Chrysler's financing arm, Chrysler Financial, to the nation's largest auto financing company, GMAC — a move the administration deems vital to saving the company — the Washington Post reported.

Germany's Daimler AG said it reached a deal to get rid of its remaining 19.9 percent stake in Chrysler, severing the last tie between the two automakers that was formed more than a decade ago. The agreement is expected to stanch the billions in losses Daimler has sustained from its Chrysler stake.

by the numbers

More shrinking


hourly GM workers in 1991


in 2000


projected in 2011


dealer locations in 2000


projected in 2010

GM's last-ditch plan calls for U.S. control, extreme downsizing 04/27/09 [Last modified: Tuesday, April 28, 2009 9:41am]
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