US set to take majority GM stake
By John Reed in London and Bernard Simon
US taxpayers would take a majority shareholding in General Motors under a sweeping debt-for-equity restructuring proposal that the carmaker revealed on Monday in a bid to avoid bankruptcy.
Under the plan, GM said it would shut 13 of 47 plants by the end of next year, resulting in an additional 7,000 job losses. The latest job cuts would reduce GM’s US workforce from 61,000 last year to about 40,000 by the end of 2010.
The carmaker, which lost its crown as the world’s biggest carmaker to Toyota last year, said it would give up its 83-year-old Pontiac brand and cut its dealership network from 6,200 to 3,600 by the end of 2010.
Fritz Henderson, chief executive, said: “The objective here is not to survive. The objective is to develop an operating plan that allows us to win.”
The Obama administration has set a June 1 deadline for GM to produce a viable turnround plan in exchange for further government aid, or face bankruptcy. The carmaker has received $15.4bn in emergency loans and expects the total to rise to about $20bn by the end of next month.
GM warned in a letter to bondholders that if the debt-for-equity swap failed to go through by June 1 it would “expect to seek relief through the US bankruptcy code”. In such circumstances, GM said bondholders might receive no “consideration at all”. GM set a May 26 deadline for bondholders to respond.
Calling the proposal “neither reasonable nor adequate,” an ad hoc committee of GM bondholders said it believed “the offer to be a blatant disregard of fairness for the bondholders who have funded this company, and amounts to using taxpayer money to show political favouritism of one creditor over another”.
The Obama administration’s auto industry task force, which has pushed for more aggressive action by GM, said the revised plan reflected the carmaker’s work over the past month in charting “a new path to financial viability”.
Mr Henderson, who took the helm a month ago after the Treasury ousted his predecessor Rick Wagoner, told the FT that the task force is “pushing us hard”. But, he added: “They’re with us every step of the way as we redevelop this plan.”
Chrysler, GM’s smaller Detroit-based rival, has until Thursday to come up with a similar plan, whose conditions include completing an alliance with Italy’s Fiat.
GM’s restructuring plan would lower its debt by $44bn to an estimated $23bn, leaving the government and a healthcare trust managed by the United Auto Workers union with 89 per cent of the equity. The rest would be mainly in the hands of holders of $27bn of unsecured bonds, who are being asked to swap their holdings for shares and accrued interest. Existing shareholders would be left with a minuscule stake. Washington would swap half its loans for equity.
The task force said it had yet to decide on the future status of its investment. Mr Henderson left open the idea of government representation on the board. He said Kent Kresa, interim chairman, was working on a new board structure
White House spokesman Robert Gibbs said: “We strongly back an auto industry that we believe can and should be self-reliant. It is not our desire to either own or run one of the auto companies.”