News - General Motors
GM gets another $US4 billion
More government aid for GM as bankruptcy looms
25 May 2009
By IAN PORTER
GENERAL Motors has put two more pieces of its survival puzzle in place by winning another loan from the US government and cost concessions from the Canadian Auto Workers union.
But the stumbling giant still appears headed for bankruptcy because the holders of $US27 billion in unsecured loans are unwilling to trade that for a handful of shares of questionable value representing 10 per cent of the reconstructed capital.
The latest loan for $US4 billion ($A5.14 billion) brings the total advanced by the US treasury to $US19.4 billion ($A24.8 billion), although GM expects the total to rise to $US27 billion ($A34.5 billion) if it gets government approval for its revised restructuring plan by June 1.
The concessions from the CAW matches those agreed with the US United Auto Workers union: lower wages costs and payment, or part payment, by new shares for the new union-administered retiree health insurance plans.
The US government insisted that all stakeholders make a contribution to GM’s recovery. The last remaining obstacle appears to be the holders of GM’s $US27 billion in unsecured bonds.
Left: Chevrolet Malibu.
While the government has stipulated that GM should issue new shares at a rate of 225 for every $1000 owed to the retiree health fund and bondholders, the bondholders will only be allowed to hold 10 per cent of the restructured capital.
The enormous number of shares to be issued would reduce the current shareholders to about one per cent, but the government has decided the union-administered Voluntary Employee Benefit Association (VEBA) should own 40 per cent after swapping about half the $US20 billion GM was to have paid into the fund.
The US government would hold a 49 per cent stake after swapping half the near-$US20 billion it is owed.
By contrast, the bondholders would get only 10 per cent of GM in return for swapping $US24 billion of the $US27 billion they are owed.
They are fighting the government’s plan, claiming that they should end up with at least 58 per cent of the restructured GM.
“It's been a universal no from the get-go," said Nevin Reilly, a spokesman for the committee representing the bondholders.
“Bondholders are being seen as speculative bad guys, but bondholders are investors, many of whom put their retirement money into GM." Obama administration's auto task force member Austan Goolsbee told Reuters that the bondholders were “going to have to take some haircut”.
"Everybody has got to put some skin in the game," he said.
The Obama administration is preparing to steer General Motors into bankruptcy next week, the Washington Post reported late Thursday, citing sources familiar with the discussions.
However, Reuters reported a source saying a GM filing was not certain and reports that GM will seek court protection as early as next week were premature.
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