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(DETROIT) General Motors Corp said that it will cut 21,000 US factory jobs by next year, phase out its storied Pontiac brand and ask the government to take stock in exchange for half of GM's government debt as part of a major restructuring effort that would leave current shareholders holding just one per cent of the company.
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| Necessary overhaul: GM said that it would speed up six additional factory closings that were announced in February |
The struggling automaker said that it will offer 225 shares of common stock for every US$1,000 in notes held by bondholders as part of a debt-for-equity swap that aims to retire most of GM's US$27 billion in unsecured debt.
The announcements came in a filing yesterday with the Securities and Exchange Commission.
US President Barack Obama's automakers task force yesterday welcomed plans by General Motors for a bond exchange aimed at reducing the company's debt.
'Today's bond exchange filing represents an important step in GM's effort to restructure its company,' the task force said in a statement.
'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,' the statement said, but it said that the administration had made no decision regarding GM.
GM is living on US$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 in a news release that it will ask the government to take 50 per cent of its common stock in exchange for cancelling half the government loans to the company as of June 1.
In addition, GM is offering the United Auto Workers stock for at least 50 per cent of the US$20 billion the company must pay into a union run trust that will take over retiree health care expenses starting next year.
CEO Fritz Henderson said that the objective of the bond exchange is to reduce GM's US$27 billion of outstanding debt by about US$24 billion dollars. The company estimates that after the exchange, bondholders would own 10 per cent of the company.
All the stock offerings mean that current common stockholders would own only one per cent of the company under the deals, GM said.
GM said that 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 US completed last week.
Including previously announced plant closures, the restructuring will leave GM with 34 factories at the end of next year, down from 47 factories at the end of 2008.
The company also said that it plans to thin its dealership ranks by 42 per cent from 2008 to 2010, cutting them from 6,246 to 3,605.
'The Viability Plan reflects the direction of President Obama and the US Treasury that GM should go further and faster on our restructuring,' Mr Henderson said in a statement. 'This stronger, leaner business model will enable GM to keep doing what it does best - provide great new cars, trucks and crossovers to our customers, and continue to develop new advanced propulsion technologies that are vital for our country's economy and environment.'
The new plan lowers GM's break-even point in North America to an annual US 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 US Treasury,' the statement said.
The company said that 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. -- AP, Reuters
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