GM’s proposed drastic cuts may still not be enough

GM’s proposed drastic cuts may still not be enough

When the catalog of cuts outlined by Fritz Henderson, CEO of General Motors, is completed, GM will have about 38,000 union employees in the United States. That’s less than twice as many GM employees as worked in Trumbull County when the Lordstown car, van and Fisher Body plants and the Packard Electric Division of General Motors were at their peak.

Henderson outlined a retrenchment that is staggering in its scope, especially for the Mahoning Valley, which has been identified with the corporation for so long and continues to rely on the Lordstown plant, the thousands of ancillary jobs and on the pensions and benefits received by thousands of GM retirees still in the Valley. That Lordstown is slated to be the site for production of one of GM’s new anchor products is some consolation.

Still, what Henderson outlined may not be enough to save the company from bankruptcy. While the government has agreed to shift the markers it holds to GM stock, and the United Auto Workers Union has agreed to shift much of the troublesome legacy costs to stock, the holders of $27 billion in bonds are balking.

Who’s holding the paper

Those bonds are held by big banks, large retirement funds and thousands of individuals. GM is offering them stock worth about $400 on today’s market for every $1,000 in debt held. If, eventually, the stock goes up, the bondholders would likely do better than if they forced GM into bankruptcy. But if the stock were to fall, the bondholders might do better forcing a bankruptcy and making a court claim on GM’s assets.

We have consistently argued that the bankruptcy of General Motors would not only be bad for the company, horrible for its employees and devastating to local economies, but it would have a national ripple effect that everyone should want to avoid. And we continue to believe that.

Casualties are spread out

The first As it is, Henderson’s plan has enough pain for just about everyone. The move to shed Saturn, Hummer and Saab will be accelerated. The loss of Pontiac, a brand that was on the bubble, was confirmed. Dealerships will be cut from 6,246 to 3,605. That alone will affect owners and investors, hundreds of communities and thousands of workers.

GM will be left with Chevrolet, Cadillac, GMC and Buick. It is a company that Henderson believes can turn a profit. But unless the bondholders are convinced of that over the next month, no one may ever find out.

If the bondholders roll the dice in favor of bankruptcy, the only thing the rest of us will find out is how bad it hurts when a corporation that once symbolized American industrial might, engineering excellence and sense of style is treated like a heap sent to the scrap yard.