Govt + UAW = GM Owners - What could possibly go wrong?

[onewhippedpuppy]

http://www.kansas.com/business/updates/story/788665.html

Under new plan, govt would become majority GM shareholder, UAW next largest, current shareholders would retain approximately 1%. Sounds like a winning plan to me!


DETROIT - General Motors Corp. could be majority owned by the federal government 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 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 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 34 cents, or 21 percent, to $2.03 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-leveraged as a company," Henderson said.

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.

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.

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.

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.

AP Auto Writer Bree J. Fowler in New York, AP Business Writer Stephen Manning in Washington, D.C., and Associated Press Writer Charmaine Noronha in Toronto contributed to this report.

[MotoSook]

Since we are shareholders in the the US, can we vote "NO" to the plan?

When I read the CNN version this morning, all I could think was...argh! STUPID...and those idiots on the hill will probably allow it! STUPID...STUPID STUPID! This kind of shiat makes me want to run for office....I probably won't get far...I can't kiss arse and I've got what medical pros call a spine.

[jyl]

If GM is to be saved - and I realize some might think it should be liquidated - but if the decision is to save it, who would you want to own it?

Existing shareholders don't deserve to own hardly any, in my opinion - they made their investment bet and lost big. Existing bondholders ditto.

The US taxpayer via the government deserve to own most of the company, in my opinion, in return for providing most of the money to bail it out.

As for the UAW, I don't have a strong opinion as to what they deserve to own, as long as it isn't a very large portion.

[legion]

This looks a lot more like political payback and a lot less like an objective plan.

[Shaun @ Tru6]

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.

Talk about a sucker deal for the government.

[onewhippedpuppy]

Originally Posted by jyl

If GM is to be saved - and I realize some might think it should be liquidated - but if the decision is to save it, who would you want to own it?

Existing shareholders don't deserve to own hardly any, in my opinion - they made their investment bet and lost big. Existing bondholders ditto.

The US taxpayer via the government deserve to own most of the company, in my opinion, in return for providing most of the money to bail it out.

As for the UAW, I don't have a strong opinion as to what they deserve to own, as long as it isn't a very large portion.

Bankruptcy and reorganization backed by government LOANS. Not free money, not making it into the official govt automaker, but LOANS. This should have happened 6 months ago when they got their first bailout.

They can't efficiently budget and run our government, and they make all the rules. What makes the govt think they can turn a profit in a highly competitive, lean, and global industry?

[Jim Richards]

I'm still "banking" on GM and Chrysler going bankrupt this spring.

[MotoSook]

(In respense to John's post)

How about a different plan? Something that doesn't risk the future of my kids and my tax dollars? .. a big risk that will be managed in part by the UAW. Why not have the mafia buy GM and let them run it....It probably won't look much different than a UAW-GM, but the mafia can go crack the knees of the Japanese and Germans to hold market shares. Oh wait...the US unions muscles the competition too.

If it's a loan...fine. If GM fails with the loan...we get guaranteed cash back from liquidated assets. Just like any bank loan, gov't money loaned to a corporation with a high probablility of failure...needs collateral. We aren't just giving money away here right?

Getting ownership of GM means what? That we share the loss when GM ultimately fails? That's great for GM and the UAW...not so much for the tax payer. No Thanks.

I'm not offering anything to the share holders. I just don't want to own GM. It would be a bad move....done in haste.

[Embraer]

Each new GM will come with one of these badboys installed on the dash...

[MotoSook]

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.

So make that $20 billion tossed into the toilet...$10B canceled..and another $10B to the UAW. What the hell is going on! How STUPID can our politicians be to accept this? I hope not that STUPID.

[pwd72s]

Originally Posted by legion

This looks a lot more like political payback and a lot less like an objective plan.

Yep...

[onewhippedpuppy]

Originally Posted by pwd72s

Yep...

From a Chicago politician? NEVER!

[jyl]

What is your proposed "different plan"? This is a tough situation, every solution that saves GM will involve substantial taxpayer money and risk of loss. And every solution that sends GM into liquidation also involves substantial taxpayer money (loss of tax revenue, benefits payable to unemployed, etc), plus potentially taking down the rest of the auto industry in the US (since Ford and the transplant OEMs are dependent on many of the suppliers who would be pulled under by a GM liquidation).

I understand your frustration, but there is not an easy way out.

As for the specific ownership structure of a restructured GM, the OP describes a proposal GM is making, not necessarily what will happen. The existing bondholders may not agree, which would put GM into bankruptcy and then the ownership structure that emerges could look quite different.

If the US govt's ownership is debt, that implies some repayment if GM is eventually liquidated, but probably not "guaranteed" full repayment depending on what GM's assets can be liquidated for (right now, not so much). If the US govt's ownership is equity, that could mean the taxpayer participates in the upside should GM manage to turn around. Probably it will end up being some of both.

Originally Posted by Souk

(In respense to John's post)

How about a different plan? Something that doesn't risk the future of my kids and my tax dollars? .. a big risk that will be managed in part by the UAW. Why not have the mafia buy GM and let them run it....It probably won't look much different than a UAW-GM, but the mafia can go crack the knees of the Japanese and Germans to hold market shares. Oh wait...the US unions muscles the competition too.

If it's a loan...fine. If GM fails with the loan...we get guaranteed cash back from liquidated assets. Just like any bank loan, gov't money loaned to a corporation with a high probablility of failure...needs collateral. We aren't just giving money away here right?

Getting ownership of GM means what? That we share the loss when GM ultimately fails? That's great for GM and the UAW...not so much for the tax payer. No Thanks.

I'm not offering anything to the share holders. I just don't want to own GM. It would be a bad move....done in haste.

[The Gaijin]

Forget those billions. What is this going to cost us going forward??

[jyl]

In general, I think anyone bellyaching about GM (or Chrysler, or the banks) should be required to propose their own feasible alternative plan, backed up by reasonably well-supported dollar figures, with the costs plainly laid out. The fact is, these are very, very tough problems and it is easy to take potshots at any of the potential solutions. Without a constructive alternative, all that this sort of discussion demonstrates is that we are unhappy about the state of the world. Boo hoo, next headline please.

[legion]

I just want to know why this is my problem to fix at all.

What gives the government the right to bailout (formerly) private companies, using my money?

If you could please quote the article and/or amendment of the Constitution that grants the federal government this ability.

[MotoSook]

John, if I recall your sentiment about TARP was similar. That was such a big success, maybe we should rush into bailing out GM too?


It's all scary "what if we don't do anything" BS like they pulled with TARP. If all the great minds can't figure out a plan to make GM a profitable company, making the UAW and Gov't shareholders will make GM profitable how?

The problem isn't the funding...right, 'cuse if there was a good plan to make GM profitable there would be investors lining up to buy. Instead we have a dying dog that the government wants to groom in hopes that it will live again.

Letting GM determine the terms of their own bailout? STUPID. If the hill is STUPID on this like they were on TARP....we're be paying for it for years.

[tabs]

Talked to a Tool Mfg in Detroit who has GM as a client this morning, he says it is VERY bad, and that he thinks GM is going BK.

Guess what those Bond holders are YOU...Institutional investors....Pension Funds, College Endowments, Mutual Funds and Annunities....

Also those GM retirees who put in 35 on the Line will get screwed outa their Pensions...

If the Dems ABANDON those Pensions and UAW Retirees there will be a Million Man march on Washington with lynch ropes and tar and feathers..The Dems will in effect have turned their backs on their own demographic...and will have destroyed themsleves in the process...

Also I think the govt is backstopping the parts suppliers...to keep them from going BK.

Who would want a Government Motors product? The liquidation of GM is only going to be a matter of time now.

[the]

The Govt should not have taken over GM.

If GM needed to file a bky, they should have been permitted to do so, instead of being trapped into defacto nationalization by the US govt. If the govt wanted to provide post-petition financing, they should have done that, but without taking over the company. Just take a security interest in everything.

The problem is the govt has primarily political, not financial, motives and goals. Also, because the govt, unlike any other lender in the world, can print money, it can behave in financially irrational and irresponsible ways almost indefinitely.

That completely screws up the bky benefits and drastically hurts any chance of a real reorganization.

[jyl]

Originally Posted by Souk

John, if I recall your sentiment about TARP was similar. That was such a big success, maybe we should rush into bailing out GM too?


It's all scary "what if we don't do anything" BS like they pulled with TARP. If all the great minds can't figure out a plan to make GM a profitable company, making the UAW and Gov't shareholders will make GM profitable how?

The problem isn't the funding...right, 'cuse if there was a good plan to make GM profitable there would be investors lining up to buy. Instead we have a dying dog that the government wants to groom in hopes that it will live again.

Letting GM determine the terms of their own bailout? STUPID. If the hill is STUPID on this like they were on TARP....we're be paying for it for years.

You don't appreciate it, but TARP was in fact successful. How do we know? Because the US banking system is not currently in wholesale collapse, there have only been 20-ish failed banks (all small) in 2009 so far instead of thousands (including the biggest), and the country is not in a full-blown Depression.

I am continually surprised that people don't realize how close the US, and indeed global, banking system was to a total meltdown back in fall 2008. We were very close to it. The actions that Treasury and the Fed took then, of which TARP was just a part, were emergency steps to prevent a severe recession from spiraling into a genuine economic collapse.

Anyone who complains that TARP didn't prevent or end the recession - sorry, you are really misguided.