General Motors, one of the casualties of the economic crisis, announced its final plan to stave off bankruptcy. It aims to slash its $27 billion bond debt through an equity swap and cut more than 21,000 more jobs.
AFP - General Motors and Chrysler are making last-ditch efforts to avert bankruptcy and keep government loans flowing by giving up big stakes in the ailing companies in exchange for debt obligations.
Chrysler, which faces a White House deadline this week for its viability plan, clinched a deal Sunday with the United Auto Workers Union that aims to meet the government's requirements for reducing its debt.
The terms of that deal were not immediately disclosed but the government has pressed the UAW to accept half of the 10.6 billion dollars owed by Chrysler for a trust fund for retiree health care in stock rather than cash.
Chrysler also struck a deal with Germany's Daimler AG to renounce its 19.9 percent stake in the US firm and to pay 600 million dollars in pension costs.
GM, which faces a June 1 deadline, is aiming to give the government a majority stake in the former world's biggest automaker and leave current shareholders with less than one percent of its stock under an accelerated overhaul plan announced Monday.
The new plan, which also calls for more job cuts and an end to the Pontiac brand, aims to get out of a crushing debt burden by converting much of that to stock -- a move giving 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.
GM and Chrysler have received a total of more than 17.4 billion dollars in government loans since December, in an effort to stave off collapse as the world's largest economy suffers its second year of recession.
President Barack Obama's administration has demanded they submit viable restructuring plans before further aid will be considered, and also has raised the prospect of bankruptcy with government support.
Some analysts remained skeptical about the ability of the two firms to avoid bankruptcy court.
"We do not view possible further government support as open-ended for either company, in light of the still weak outlook for light-vehicles sales globally," Standard & Poor's analysts said.
S&P said Chrysler would probably be liquidated under bankruptcy.
"We do not believe Chrysler would be likely to emerge from bankruptcy as one reorganized entity," S&P said. "A bankruptcy filing, should it occur in the next several weeks, would place additional stress on the supply base, in our opinion."
Peter Cohan of the consultancy Peter Cohan & Associates said the two automakers are "scrambling to settle their broken promises to unions and bondholders before a bankruptcy judge does it for them. But their broken promises to customers and shareholders are the biggest threat to their long-term survival."
GM acknowledged that bondholders would take a "haircut" under the plan, but said they might get less or nothing if the company goes into bankruptcy court.
"The bond exchange needs to be successful for us to avoid bankruptcy," said Fritz Henderson, GM president and chief executive.
Henderson argued that bankruptcy remains highly probable 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.
Obama's auto task force 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."
Under its new plan, GM 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 it would phase out Pontiac by the end of 2010 and focus on four core brands in the US -- Chevrolet, Cadillac, Buick and GMC -- as it trims production.
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.
GM said that under the latest plan, it could break even in the North American market with an industry volume of 10 million total vehicles, well below the 15 to 17 million annual vehicle sales rates from 1995 through 2007.
Date created : 2009-04-28