Demise of Pontiac is sad but necessary

GM proposes that the government own more than half of the company.

STAFF/WIRE REPORT

The demise of Pontiac is sad but necessary if General Motors is to survive, say some of those who build and sell the models.

“If we have to give up a brand for the health of the patient, that’s what we’ll have to do,” said Dave Sweeney, co-owner of Sweeney Buick-Pontiac GMC in Boardman.

Dave Green, president of United Auto Workers Local 1714 in Lordstown, said GM has to scale back its number of brands in order to transform itself into a profitable company.

Local officials commented Monday after GM announced that it plans to kill the Pontiac brand by next year. Other parts of GM’s revised turnaround plan include offering the government and UAW large amounts of company stock instead of cash and slashing more jobs and plants.

Sweeney said dealers knew Pontiac’s future was in question because previous restructuring plans listed it as a “niche” brand, but GM never detailed any products. GM also is jettisoning the Hummer, Saturn and Saab brands.

Sweeney doesn’t expect his dealership to be hurt by losing Pontiac, which makes up about 20 percent of its sales. Many Pontiac models are sister cars to Buicks or Chevrolets, so car buyers can switch to those models, he said. Sweeney and his brother, Doug, also own Sweeney Chevrolet in Boardman.

Another big part of GM’s plan is to cut its dealerships from 6,246 to 3,605 by the end of next year.

Standalone Pontiac dealers are in jeopardy, but the cuts will come across all GM brands, Sweeney said.

One local dealership — Jim Pace Pontiac in Niles — has only Pontiacs. He also has two area Saturn dealerships. Pace could not be reached to comment.

GM told dealers they will be notified in May whether they are going to survive, Sweeney said.

GM spent about $1 billion on payments to dealers when it eliminated Oldsmobile, but Sweeney said he is not expecting large payments this time because of the automaker’s financial condition. No details have been released.

Sweeney said he expects his dealerships to survive because they are in a good retail area and have two newer buildings.

Jim Graham, president of UAW Local 1112 in Lordstown, said communities are being hurt as automakers slim down their dealership networks and plants.

“You’re talking about families that aren’t going to have jobs,” he said.

Green said the Lordstown complex will be in good shape without Pontiac, even though it has built Pontiac models for much of its history. It now builds the Pontiac G5 and the Chevrolet Cobalt, but production of those models is to end next year when the plant begins making the Chevrolet Cruze. No Pontiac model had been announced to go along with the Cobalt.

Green said GM could add production to Lordstown without a twin model of the Cruze for Pontiac. A new body shop is being installed that will allow the plant to produce different models that are based on the same underbody platform.

GM is living on $15.4 billion in government loans and said Monday in a filing with the U.S. Securities and Exchange Commission that it envisions receiving an additional $11.6 billion. But if GM’s restructuring plan can’t satisfy the government by June 1, the struggling company could go into bankruptcy protection.

GM said that it will ask the government to take more than 50 percent of its common stock in exchange for canceling half the government loans to the company as of June 1. The swap would cancel about $10 billion in government debt.

In addition, GM is offering stock to the United Auto Workers for at least 50 percent of the $20 billion the company must pay into a union-run trust that will take over retiree health-care expenses starting next year.

If both are successful, the government and UAW health-care trust would own 89 percent of GM stock, with the government holding more than a 50 percent stake, CEO Fritz Henderson said.

President Barack Obama’s administration said in a statement that the bond-exchange filing is an important step in GM’s restructuring, but the administration has not made a final decision about taking stock for part of its loans.

Henderson said that though the government would own a majority of GM’s outstanding common shares, the Treasury “hasn’t demonstrated interest in running the company,” but would have someone on the board looking out for the taxpayers’ interest.

GM’s new plan includes an offer to swap roughly $27 billion in bond debt for GM stock, which would leave current shareholders holding just 1 percent of the century-old company.

Kip Penniman Jr., an analyst with KDP Investment Advisors Inc., predicted the exchange offer would fail, and GM will file for bankruptcy. The value of all of GM’s outstanding stock is about $1.27 billion, so if bondholders get about 10 percent of the equity, the offer is only worth about 5 cents per dollar of GM bonds, he said.

GM’s plan depends on 90 percent of bondholders exchanging their debt, and “there is no chance that GM will get anywhere near that participation rate,” Penniman said in a research note.

GM said it would eliminate 21,000 U.S. factory jobs and speed up six additional factory closings that were announced in February, though it did not identify the locations. Additional salaried-job cuts also are coming, beyond the 3,400 in the U.S. completed last week.

Henderson said there would be three more factory closures in 2010 beyond the six that were previously planned. He expects to identify them publicly in May. They will include assembly, engine and transmission and parts-stamping factories, he said.

Including previously announced plant closures, the restructuring will leave GM with 34 factories at the end of next year, 13 fewer than the 47 it had at the end of 2008.

Besides the U.S. job cuts, General Motors Canada said it plans to slash its hourly work force to from 10,300 currently to 4,400 by 2014 years.