General Motors has announced its third restructuring plan of the year in efforts to avoid bankruptcy. The plan includes a debt-for-equity offering to bondholders and the elimination of 21,000 hourly jobs by 2010 and the cutting of 2,000 additional union and salaried positions by 2011, with total layoffs representing a third of GM's workforce.
According to the new regulatory filing released Monday, the company is also planning to close some 13 plants and reduce the number of car dealerships it works with by almost half. Moreover, the company will stop producing Hummer, Saturn, and Saab vehicles by the end of 2009 and terminate its brand Pontiac in 2010. However, the company can only avoid bankruptcy and carry out this plan if bondholders accept GM's debt-for-equity offer, which would reduce GM's liabilities by $44 billion.
Under the new plan, which needs US government approval by May, the US Treasury Department would hold a majority of GM stock and have the right to appoint directors. But first, the company's creditors, including bondholders and the United Autoworkers Union, need to agree to exchange their GM equity for shares of the company.
The new plan is based on a debt-for-equity offering GM is extending to bondholders, who collectively represent more than $27 billion of GM debt. Bondholders are being asked to exchange all their claims for 10 percent of the equity in the reorganized company. In exchange for its $20.4 billion in obligations to the United Auto Workers' retiree-medical fund, GM would give the UAW fund 39 percent of common stock in the carmaker. The US government would own the remaining 51 percent.
At least 90 percent of outstanding bondholders must accept this offer or the firm will file for bankruptcy by June 1. Many bondholders were not happy with the plan as of Monday, with one group commenting that the company is unfairly using taxpayer money to favor union interests.
Just last week, the Obama Administration lent the automaker $2 billion. Since last December, the amount of federal aid the firm has received totals $15.4 billion, and it is still asking for an additional $11.6 billion in loans.
Chrysler has already taken similar measures by carrying out massive layoffs in the last two years, laying off 32,000 employees since January 2007. Earlier this year, the company announced it would lay off 3,000 additional employees in 2009.