General Motors could end up leaner, owned by government

DETROIT (AP) — General Motors, once the colossus of American capitalism, will become a leaner, government-owned company if the Obama administration goes along with the automaker’s plan to slash jobs, close plants and eliminate the legendary Pontiac brand.

As GM laid out the proposal Monday, new agreements fell into place between Chrysler and its unions in the United States and Canada, making it apparent that the future of both companies now rests with their creditors.

General Motors CEO Fritz Henderson said the company would offer the Treasury Department more than 50 percent of its stock to absolve GM of $10 billion in government loans.

The automaker also proposed that the United Auto Workers take GM stock for at least half the $20 billion the company owes to a union-run trust that will assume retiree health care expenses starting next year.

Combined, the union and government would own 89 percent of the century-old automaker, which has been bleeding red ink and is saddled with more than $62 billion in debt.

“It is unprecedented, but it signifies the importance of the automobile industry,” said David Lewis, a retired professor at the University of Michigan.

Although the government has loaned money to corporations in the past, including to Chrysler in the 1970s, Lewis could not recall a time when it had taken a majority stake in a company.

White House press secretary Robert Gibbs said the administration does not want to own GM or any other auto company.

But GM’s plan depends on persuading unsecured bondholders who have loaned GM $27 billion to forgive that debt in exchange for a 10 percent stake in the company.

Current GM shareholders would own only about 1 percent.

GM’s announcement sent its shares up 21 percent to $2.04 Monday, meaning bondholders would get about 46 cents on the dollar. But that does not take into account dilution of GM’s shares once the government and the union get their giant piece of the pie.

Analysts estimated that the value was closer to 5 cents on the dollar.

General Motors is surviving on $15.4 billion in government loans, and said Monday in a filing with the U.S. Securities and Exchange Commission that it envisions getting an additional $11.6 billion.

GM Chief Financial Officer Ray Young said that’s all the company will need under its new plan.

But if GM’s restructuring plan cannot put all the pieces in place by June 1, the struggling company could go into bankruptcy protection.

Meanwhile, Chrysler is surviving only because of $4 billion in government aid.

The company has until Thursday to adopt a partnership with Italy’s Fiat Group SpA and to devise a restructuring plan that satisfies the government so it can get an additional $6 billion.

United Auto Workers President Ron Gettelfinger said the union’s factory-level leaders voted unanimously Monday night to recommend that members approve concessions designed to keep Chrysler LLC out of bankruptcy.

The Chrysler deal almost certainly will be the template for GM, although Young said negotiations with the union had not yet resumed in earnest. In addition, both companies have deals with the Canadian Auto Workers.

If successful, the plan for the government to own a majority of GM’s outstanding common shares would wipe out $44 billion of GM’s $62.4 billion debt. Bondholders have until May 26 to accept the offer, which is contingent on the deals with the government and the UAW falling into place.

Germany’s Daimler AG said Monday it has reached a deal to get rid of its remaining 19.9 percent stake in Chrysler LLC, severing the last tie between the two automakers that was formed more than a decade ago.

The agreement is expected to stanch the billions in losses Daimler has sustained as a result of its stake in the struggling U.S. automaker, which itself faces a Thursday deadline to restructure or face possible collapse.

Under the agreement, Daimler will forgive $1.9 billion in loans it extended to Chrysler, which it had already written off in its 2008 financial results.

Daimler also agreed to pay $200 million into Chrysler’s pension plan when the deal takes effect and in each of the two years afterward. The money will help fund the pensions of former DaimlerChrysler AG workers, Daimler said.

Young said the Treasury Department always expected some of the government debt to be exchanged for GM stock, but the government issued a statement saying it had not decided to do it.

The company still prefers restructuring outside of court, but Henderson acknowledged bankruptcy is more likely now than a few weeks ago.

GM said it would speed up six factory closings announced in February and close three additional facilities in 2010.

Henderson expects to identify the plants in May and said they will include assembly, engine, transmission and parts-stamping factories.

GM also will cut 21,000 hourly jobs in the U.S. by 2010 — 7,000 more than what the company outlined just two months ago.