General Motors unveiled an accelerated overhaul plan Monday aimed at staving off bankruptcy by giving effective control of the ailing automaker to the US government and its main union.
The new plan, which also calls for more job cuts and an end to the fabled Pontiac brand, aims to ease a crushing debt burden by converting much of the debt to stock — a move giving a combined 89 percent of GM shares to the US Treasury and United Auto Workers union.
Bondholders would get 10 percent of the company\’s stock through an exchange of 27 billion dollars in outstanding bonds, leaving the existing common shareholders with just one percent of GM.
Fritz Henderson, GM president and chief executive, said the new viability was part of its requirement to get additional loans from the US Treasury and may be the only way the company can avert bankruptcy.
“The bond exchange needs to be successful for us to avoid bankruptcy,” he said.
He argued that bankruptcy remains highly probable given the reluctance of bondholders to accept a reduced value for the debt.
But if the plan succeeds, GM would eliminate some 44 billion dollars of its current debt level.
The plan is contingent on the US Treasury swapping 10 billion dollars in loans for common stock and the UAW accepting shares in exchange for a similar level of obligation to its health care funds.
“Our objective is to create an operating structure and strategy where we can win, not simply survive,” Henderson said.
The former world\’s biggest carmaker is working against a June 1 deadline from the US government to come up with a new viability plan or face the end of government credits, which would force the company into bankruptcy.
President Barack Obama\’s auto task force called the bond exchange offer “an important step in GM\’s effort to restructure its company” but declined to say t would accept the debt-for-equity swap.
The task force said in a statement said the US administration “has made no final decision regarding the treatment of its current loan to GM or with respect to any future investments in the company.”
Under its new plan, GM would shed an extra 7,000 to 8,000 production jobs to bring to 21,000 the number of blue-collar job cuts by the end of next year.
GM said these and other actions would “speed the reinvention of GM\’s US operations into a leaner, more customer-focused, and more cost-competitive automaker.”
Without the concessions from bondholders and others, GM said it would likely seek bankruptcy protection.
GM said it would phase out Pontiac by the end of 2010 and focus on four core brands in the US — Chevrolet, Cadillac, Buick and GMC — as it trims production.
The company, which last week announced it would slash output by 190,000 vehicles over the second and third quarter, said it now plans to cut the number of US plants from 47 in 2008 to 34 by the end of 2010 — an accelerated shutdown compared with the plan submitted to the US government February 17.
The revised plan seeks to find a buyer or phase out the Saab, Saturn, and Hummer brands by the end of 2009, at the latest.
These actions would reduce GM\’s US dealer network from 6,246 in 2008 to 3,605 by the end of 2010, a reduction of 42 percent — a further reduction of 500 dealers, and four years sooner, than in its February 17 Plan.
GM said that under the latest plan, it could break even in the North American market with an industry volume of 10 million total vehicles.
“This rate is substantially below the 15 to 17 million annual vehicle sales rates recorded from 1995 through 2007,” GM said.
The news came a day after the UAW announced a tentative deal with Chrysler and Italian giant Fiat and the US Treasury, clearing a major hurdle to bolster the viability of the other Detroit giant surviving on US government loans.
The settlement agreement, which was subject to ratification by UAW members at Chrysler by Wednesday, came closely after a separate deal was struck between the automaker and the Canadian Auto Workers (CAW) union.
GM shares leap 20.7 percent to close at 2.04 dollars, although some analysts remained skeptical.
Standard & Poor\’s said the bond exchange “might be difficult to accomplish, given GM\’s desire for a high threshold for participation.”
Peter Cohan of the consultancy Peter Cohan & Associates said GM “simply cannot survive if it can\’t design, build, and service vehicles that can take market share away from the best that Asia has to offer.”