Shareholders Pay for Government's Majority Stake in General Motors
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To start the week, General Motors Corp. (GM) was said to be pondering the
notion that the company could be majority-owned by the federal government
under an immense restructuring plan that would cut 21,000 factory jobs by
next year and phase out the 83-year old Pontiac brand.
The plan, which includes an offer to swap nearly $27B in bond-debt for GM
stock, would leave current shareholders owning just 1% of the 100-year old
company. GM, which is struggling to stay afloat during the worst auto sales
climate in more than 27 years, has been holding on strictly from the $15.4B
worth of government loans. The company also suggested that they see
themselves receiving an additional $11.6B in bailout funds.
The struggling automaker said it would offer 225 shares of common stock for
every $1,000 in notes held by bondholders as part of a debt-for-equity swap.
Henderson said the objective 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, GM said.
Also included in the proposal is GM asking the government to take on more
than 50% of its common stock in exchange for canceling half of the company's
remaining balance in government loans. If accepted, the exchange would reduce
the balance by almost $10B in government debt.
In addition, GM is offering company stock to the United Auto Workers (UAW)
for at least 50% of the $20B the company has outstanding and must pay into a
union trust that will see the UAW take control over retiree health care
expenses starting at the beginning of next year. If the deal were to be
successful, the government and UAW health care trust would own 89% of all GM
stock, with the government holding more than half the outstanding shares.
However, if the GM restructuring plan does not satisfy government officials
by June 1, then the company could have to seek bankruptcy protection.
In additional efforts for the company to save cash, GM announced that added
salaried jobs cuts also are coming, on top of the 3,400 cuts in the U.S.
completed last week. Besides the U.S. job cuts, General Motors Canada
affirmed that they have plans to reduce their hourly workforce from 10,300
to 4,400 by 2014.
GM also stated that they would increase the diligence of closing six
additional factories that were confirmed in February, although specific
locations were not released. By the end of 2010, the company will only have
34 plants operational, down from the company's 47 plants that it had going
into 2009.
CEO Fritz Henderson acknowledged that there would be three more factory
closures in 2010 beyond the six that were previously planned. The company
expects to identify those specific plants by May. These will include assembly
plants, engine and transmission plants, along with part-stamping factories.
The company has also set forth plans to slash its dealership ranks by 42%
from 2008 to 2010, cutting them from a current total of 6,246 dealerships to
3,605. In Minnesota alone, the vice president of the Minnesota Automobile
Dealers Association estimated that the state could lose some 50 GM
dealerships in the coming months. With that, more than 2,000 jobs will also
be lost with the dealership closings.
At the height of the company's success in the early 1990s, GM had nearly
304,000 hourly workers in 1991. However, by 1993 that number had declined to
265,000 and in 2000, the company's hourly employees totaled 133,000, before
falling to 63,700 by the end of 2008. GM now anticipates that its U.S.
workforce will total around 40,000 people in 2010 and 38,000 by 2011.
As for the company's salaried positions, there were nearly 91,000 workers in
1991 but that total decreased to 73,900 by 1993 and then to 44,000 in 2000.
At the beginning of the year, GM made it known that the company had nearly
29,000 salaried workers, prior to the completion of the 3,400 jobs cuts last
week.
In regards to the company's Pontiac brand, it will be disposed of by no later
than next year. Meanwhile, the futures of Hummer, Saturn and Saab will be
resolved by the end of this year by either selling them or phasing them out.
Henderson was quoted saying 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. The objective is not to survive, the objective is
to develop an operating plan that allows us to win," Henderson added. "We
need to have a more sustainable business model because, candidly we only want
to do this once. We want to have this as truly a defining moment for our
company."
By the close of trading on Tuesday, shares of GM were down more than 11%,
losing $0.23, to end the session at $1.81 per share.
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