GM to cut 21,000 US factory jobs, shed Pontiac

(AP) - General Motors Corp. could be majority owned by the federal government and the United Auto Workers under a massive restructuring plan laid out Monday that will cut 21,000 U.S. factory jobs by next year and phase out the storied Pontiac brand.

The plan, which includes an offer to swap roughly $27 billion in bond debt for GM stock, would leave current shareholders holding just 1 percent of the century-old company, which is fighting for its life in the worst auto sales climate in 27 years.

GM is living on $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 struggling company could go into bankruptcy protection.

GM said in a filing with the U.S. Securities and Exchange Commission 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 the UAW stock 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 in a news conference at GM's Detroit headquarters.

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.

"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. We will continue to work with GM's management as it refines and finalizes this plan and with all of GM's stakeholders to help GM restructure consistent with the president's commitment to a strong, vibrant American auto industry," the statement said.

Henderson said that although 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.

The task force has directed current board chairman Kent Kresa to replace several board members.

"The shareholders, the VEBA (health care trust) and the government would want to have a someone on the board of directors," he said.

Deals with the UAW and the Treasury have yet to be finalized, he said.

The struggling automaker said it will 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. Still, GM shares rose 47 cents, or 27.8 percent, to $2.16 in midday trading.

The plans, if successful, would reduce GM's debt by $44 billion from the present figure of about $62.4 billion.

"We would be substantially less-levered as a company," said Henderson, who answered questions while sitting in a chair on a stage with a gray curtain behind him. At times, he drank from a glass of water on a small table nearby.

Henderson said if the debt exchange isn't successful, he would expect GM to file for bankruptcy protection somewhere around June 1, but such a filing would be unlikely very long before the deadline. Bondholders have until May 26 to accept the exchange offer.

Henderson said the company still prefers to restructure outside of court, but he acknowledged that the prospect of bankruptcy is more likely now that it was a few weeks ago.

"The task at hand in terms of what we need to get done is formidable," Henderson said. "But it can be done."

GM said it would speed up six additional factory closings that were announced in February, although it did not identify the locations. Additional salaried jobs 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 by 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.

The company also said it plans to reduce its dealership ranks by 42 percent from 2008 to 2010, cutting them from 6,246 to 3,605. When asked how GM would accomplish that, Henderson would say only that the company would be making offers to the dealers in the coming weeks.

Mark LaNeve, vice president of North American sales and marketing, said a big chunk of the dealership reduction - about 450 - would come with the elimination or sale of Saturn, Hummer and Saab. GM would then look to end relationships with dealers that do only a small volume of business with GM, and then move on to other dealers, he said.

"We've got a cadence plan to it," he said. "I don't want to get rid of any dealers," LaNeve said, but acknowledged that that GM has had more dealers than it needs for quite some time.

Henderson said the new plan lowers GM's break-even point in North America to an annual U.S. sales volume of 10 million vehicles. That's slightly more than the current sales rate, but 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 U.S. Treasury," GM said in a statement.

The company said it would phase out its storied Pontiac brand no later than next year, and the futures of Hummer, Saturn and Saab 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 Ronny and the Daytonas.

Henderson said in a news conference that 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, he said.

He said the decision was very tough for many at GM because of the 83-year-old brand's heritage.

Henderson said talks continue with potential parties to buy a stake in Opel and are expected to continue through the end of May. He said the company would continue to have a presence in Europe as a stakeholder. He said Chevrolet is one of the fast-growing car segments in Eastern Europe and Russia.

One of the conditions to get aid from Germany is to have a private investor take a stake in Opel, he said.

(Copyright 2009 by The Associated Press. All Rights Reserved.)

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