GM to trade debt for stock to avoid bankruptcy

Monday, April 27, 2009 at 9:32 PM Posted by Beijing News


General Motors unveiled an accelerated overhaul Monday with deeper job and production cuts and a debt swap giving effective control of the ailing automaker to the US government and its main union.

The new plan, which also calls for an end to the Pontiac brand, aims to get out of a crushing debt burden by converting much of that to stock -- a move that would give a combined 89 percent of GM shares to the US Treasury and United Auto Workers union.

Bondholders would get 10 percent of the company stock through an exchange of 27 billion dollars in outstanding bonds, leaving the existing common stock holders with just one percent of GM, under the plan unveiled Monday.

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 probably 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.

GM also said it 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.

"We are taking tough but necessary actions that are critical to GM's long-term viability," Henderson said.

"Our responsibility is clear -- to secure GM's future -- and we intend to succeed. At the same time, we also understand the impact these actions will have on our employees, dealers, unions, suppliers, shareholders, bondholders, and communities, and we will do whatever we can to mitigate the effects on the extended GM team."

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.

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.

The 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."





Neal

0 comments:

Post a Comment

Subscribe to: Post Comments (Atom)