DETROIT (AP) - General Motors Corp. said it will cut 21,000 U.S. factory jobs by next year, phase out its storied Pontiac brand and ask the government to take more than half its stock in exchange for half of GM's government debt as part of a major restructuring that would leave current shareholders holding just 1 percent of the company.
The struggling automaker said it will offer 225 shares of common stock for every $1,000 in notes held by bondholders as part of a debt-for-equity swap that aims to retire most of GM's $27 billion in unsecured debt. The announcements came in a filing Monday with the Securities and Exchange Commission. GM is living on $15.4 billion in government loans and faces a June 1 deadline to restructure and get more government money. If the restructuring doesn't satisfy the government, the company could go into bankruptcy protection. GM said it will ask the government to take more than 50 percent of its common stock in exchange for canceling half the government loans to the company as of June 1. The swap would cancel about $10 billion in government debt. In addition, GM is offering the United Auto Workers stock for at least 50 percent of the $20 billion the company must pay into a union run trust that will take over retiree health care expenses starting next year.
If both are successful, the government and UAW health care trust would own 89 percent of the company's stock, with the government holding more than a 50 percent stake, GM CEO Fritz Henderson said. President Barack Obama's administration said in a statement that the bond exchange filing is an important step in GM's restructuring efforts. The administration has not made a final decision about taking stock for part of its loans to the company, the statement said. "The interim plan that GM laid out in this filing reflects the work GM has done since March 30 to chart a new path to financial viability. We will continue to work with GM's management as it refines and finalizes this plan and with all of GM's stakeholders to help GM restructure consistent with the President's commitment to a strong, vibrant American auto industry," the statement said. Henderson said that although the government would own 50 percent or more of GM's outstanding common shares, the Treasury "hasn't demonstrated interest in running the company," but would have someone on the board looking out for the taxpayer's interest. The task force has directed current board chairman Kent Kresa to replace several board members. "The shareholders, the VEBA (health care trust) and the government would want to have a someone on the board of directors," he said. "Shareholders have the right to basically select board members." Deals with the UAW and the Treasury have yet to be finalized, he said.
Henderson said the objective of the bond exchange is to reduce GM's $27 billion of outstanding public debt by about $24 billion. The company estimates that after the exchange, bondholders would own 10 percent of the company. That would leave current common stockholders with only 1 percent of the company under the deals, GM said. GM shares rose 46 cents, or 27.2 percent, to $2.15 in morning trading. The plans would reduce GM's debt by $44 billion from the present figure of about $62.4 billion. "We would be substantially less levered as a company," said Henderson, who answered questions at GM's Detroit headquarters while sitting in a chair on a stage with a gray curtain behind him. At times, he drank from a glass of water on a small table nearby. Henderson said if the exchange isn't successful, he would expect GM to file for bankruptcy protection somewhere around June 1, but such a filing would be unlikely very long before the deadline. Bondholders have until May 26 to accept the exchange offer. Henderson said the company still prefers to restructure outside of court, but he acknowledged that the prospect GM will file for bankruptcy protection is more likely now that it was a few weeks ago. "The task at hand in terms of what we need to get done is formidable," Henderson said. "But it can be done." GM said it would speed up six additional factory closings that were announced in February, although it did not identify them in its news release. Additional salaried jobs cuts also are coming, beyond the 3,400 in the U.S. completed last week.
Henderson said there would be three more factory closures in 2010 beyond the six that were previously announced. He expects to identify them by publicly sometime in May. They will include assembly, engine and transmission and parts stamping factories, he said. Including previously announced plant closures, the restructuring will leave GM with 34 factories at the end of next year, 13 fewer than the 47 it had at the end of 2008. The company also said it plans to reduce its dealership ranks by 42 percent from 2008 to 2010, cutting them from 6,246 to 3,605. When asked how GM would accomplish that, Henderson would say only that the company would be making offers to the dealers in the coming weeks. Henderson said the new plan lowers GM's break-even point in North America to an annual U.S. sales volume of 10 million vehicles, the company said. That's slightly more than the current sales rate, and most economists expect an uptick in the second half of the year. "This lower break-even point better positions GM to generate positive cash flow and earn an adequate return on capital over the course of a normal business cycle, a requirement set forth by the U.S. Treasury," the statement said. The company said it would phase out its storied Pontiac brand no later than next year, and the futures of its Hummer, Saturn and Saab brands will be resolved by the end of this year by either selling them or phasing them out. For Pontiac, the decision means the death of a brand known for its muscle cars including the Trans Am made famous in movies and the GTO, the subject of a nostalgic song by the Beach Boys.
Henderson said in a news conference that the company was spread too thin to make Pontiac work. "We didn't think we had the resources to get this done from a product perspective," or marketing, he said Monday at a news conference. He said the decision was very tough for many at GM because of the brand's heritage. Henderson said GM wants to develop a plan that doesn't have to be repeated. "We only want to do this once," he told reporters. Henderson said talks continue with potential parties to buy a stake in Opel and are expected to continue through the end of May. He said the company would continue to have a presence in Europe as a stakeholder. "I don't expect we would be absent from the European market," he said, adding that it would be under a different structure than current ownership of Opel. One of the conditions to get aid from Germany is to have a private investor in Opel. Henderson said discussions on Opel continue. Chevrolet is one of the fast-growing car segments in Eastern Europe and Russia, he said.