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The automaker's moves are part of a revised business plan submitted to the Treasury Department. About 21,000 job will be cut by year's end.
In a zero-hour bid to stay out of bankruptcy, General Motors Corp. said today it would fold the Pontiac brand, cut 42% of its U.S. dealers and 28% of its plants by the end of 2010, and offer holders of $27 billion in debt significant equity stakes in the company.
GM will also cease production of Hummer, Saturn and Saab vehicles and shed 21,000 jobs by year's end.
The automaker announced the sweeping moves as part of a revised business plan it is submitting to the Treasury Department.
"The objective here is not to survive, the objective is to develop an operating plan that helps us win," said Fritz Henderson, GM's president and chief executive in a morning conference call. "It's a difficult period, it's a challenging period, it's a very painful period."
Henderson conceded, however, that a bankruptcy filing would still be a possibility if the company is unable to reach accords with stakeholders.
This is the third version of the company's plan since December, and this time it calls for a return to financial viability in a market with industry sales as low as 10 million vehicles in the U.S. on an annual basis. In that time, GM has borrowed $15.4 billion from the federal government.
In March, the Treasury Department's autos task force rejected GM's previous restructuring plan, saying it was insufficiently aggressive.
GM has been given until June 1 to show the Obama administration it has a sustainable business model or it faces being pushed into bankruptcy.
To do that, GM was asked to reduce billions of dollars in obligations to the bondholders and unions for retiree healthcare and to reduce labor costs, as well as show it can turn a profit in a market that's seeing its lowest sales level in three decades.
Chrysler, which has borrowed $4 billion from the government, has also been given until the end of this month to reduce its debt and to cut union costs. In addition, it has been asked to forge a merger with Italian automaker Fiat.
On Sunday, Chrysler reached a deal with the United Auto Workers union and the Canadian Auto Workers union, the latter of which has been ratified and is expected to save the company about $200 million a year in labor costs.
GM is also negotiating with those unions, but today said it had not yet reached an agreement on new concessions with either and would continue talks.
The Chrysler union deals are likely to set a framework for any agreement that GM reaches in coming weeks.
One sticking point for GM has been reducing by as much as half $20 billion in cash obligations to a retiree healthcare trust. The automaker said it would accomplish that goal with a debt-for-equity swap, and would also offer the same exchange to the Treasury in exchange for up to $10 billion in debt and to private holders of $27 billion in GM bonds.
A tender offer extended by the company today would trade 225 shares in the company for every $1,000 in debt, and Henderson said it aimed to cut about $44 billion from its balance sheet.
If successful, it would give the U.S. government at least a 50% stake in the automaker, with the union holding up to 39% and bondholders with an additional 10% share. Current shareholders would effectively be wiped out. Henderson did not give details on how GM would be managed in that scenario, but said that the "administration is not interested in running GM."
Meanwhile, GM said it would soon begin contacting the approximately 2,600 dealers it has selected for elimination and make them undisclosed offers to surrender their GM franchises. That could cost billions of dollars, although Henderson declined to give specifics of the offer.
A big part of that reduction would be eliminating Pontiac, which GM today added to the list of targeted brands. Hummer, Saab and Saturn were already slated for closure. Henderson said that production of all four brands would cease by 2010, although a few Pontiac models could be extended for another year.
In addition, Henderson said that should a potential buyer of one of those brands wish to continue selling the same models, GM would be open to performing contract production.
"It's been my theory that big is only good if you use it to your advantage," said Henderson. "As a company, our overall performance has not been adequate."
By Ken Bensinger
http://www.latimes.com
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