GM to Cut 21,000 Jobs, Eliminate Pontiac
Peter Whoriskey and Kenra Marr - The Washington Post
The U.S. Treasury would own at least a 50 percent stake in General Motors under a plan the company released today to avoid bankruptcy.
GM President and CEO Fritz Henderson. (Photo: AP)
The strategy would essentially formalize the government's control over one of the icons of corporate America.
"I'm a believer in dealing in reality," GM chief executive Fritz Henderson said in announcing the new plan. "We've gotten great support from the Treasury. It has viewed this matter from day one as a kind of private equity investment. It has pushed us in a lot of ways."
The announcement came as the company said it would further shrink the number of workers, dealers and types of cars in an attempt to prepare it for a United States shrunken by the recession.
Henderson said GM will eliminate 21,000 jobs by next year and phase out its Pontiac line as part of a last-ditch restructuring effort to keep the company afloat and win additional government aid.
But one of the keys to the strategy for keeping the automaker out of bankruptcy is ridding it of debt by enticing lenders to drop their debt claims in exchange for equity stakes.
GM also said it would offer a debt for equity swap, handing over 225 shares in the company in exchange for every $1,000 in bondholder debt. Bondholders would eventually hold 10 percent of the equity in the reorganized company.
By June 1, the Detroit-based automaker, which has already received $15.4 billion in federal loans, must gain significant concessions from stakeholders to continue to receive aid.
Under the outlines announced yesterday, the federal government would take an equity stake of at least 50 percent, the United Auto Workers would take as much as 39 percent, the company's bondholders would get 10 percent and the existing shareholders 1 percent.
None of the debt-for-equity swaps have been formally reached, however, and it is still possible that the company will be reorganized in bankruptcy court.
Henderson said that the company's bondholders, who own $27 billion of company debt, are the chief obstacle in the company's bid to reach agreements out of court.
The Treasury Department has mandated that GM swap two-thirds of its debt for equity. But GM bondholders have balked at previous proposals to do so.
"If we seek bankruptcy relief, you may receive consideration that is less than what is being offered in the exchange offers and it is possible that you may receive no consideration at all for your GM notes," said a letter to bondholders that was part of the filing.
The deadline to participate in the exchange offer is May 26.
The new equity stake for the U.S. in many ways merely makes official the role that the government has taken at the company.
The U.S. Treasury has already asked that former chief executive Rick Wagoner step down. It has also ordered that the company's board be reconstituted.
"The Treasury has not demonstrated any interest in running the company," Henderson said.
But with today's announcement, the company sought also to make the cuts that the Obama administration's autos task force had asked for in March.
Factory jobs will be cut by next year, the company said. Pontiac will be phased out by 2010, and Henderson said the company does not expect to build Hummers, Saabs and Saturns beyond 2009.
"The objective is not to survive, the objective is to develop an operating plan that allows us to win," Henderson said at a televised news conference. "We need to have a more sustainable business model because, candidly we only want to do this once," he said. "We want to have this as truly a defining moment for our company."