News - General Motors
GM slashes factories, jobs, dealers
Debt to bondholders vaporised as GM slashes and burns in revised survival plan
28 Apr 2009
By IAN PORTER
GENERAL Motors will close a third of its plants, cut 21,000 jobs and shed more than 40 per cent of its dealers in the US under its new, accelerated restructuring plan which it hopes will make it profitable as soon as next year.
The revised plan announced last night contains the “deeper and faster” cuts sought by the US treasury when it rejected GM’s last restructuring plan in February.
GM’s debtors will also feel the force of the cuts in a new debt redemption offer that amounts to a massive repudiation of the company’s unsecured debt.
The company’s debt will be slashed from $US84 billion ($A118 billion) to around $US40 billion ($A56 billion), more than halving the company’s annual interest bill in a new plan all paid for with new, low-value GM shares.
GM chief executive Fritz Henderson said that if the company’s bondholders did not accept the take-it-or-leave-it redemption offer – no cash and only $US225 worth of new GM shares for every $1000 of debt – GM would file for bankruptcy in early June.
He confirmed speculation that the Pontiac brand would be closed by the end of 2010, a decision that will affect production levels in South Australia where GM Holden makes the doomed Pontiac G8.
Left: The Chevrolet Camaro.
Production is believed to have already dropped off sharply this year, although G8 sales have been improving recently.
Under the revised plan, GM will now close an extra seven plants before 2011, slashing the total from 47 assembly, powertrain and stamping plants in 2008 to 31 by 2012 – a 34 per cent reduction.
These closures will lift the number of people to be retrenched from 14,000 to 21,000 by 2011 – a 38 per cent cut in the GM workforce from the 61,000 in 2008.
As a result, GM’s direct wages costs will plunge 34 per cent from $US7.6 billion to $US5 billion a year. Overall operating costs will drop from $US30.8 billion in 2008 to $US23.2 billion in 2010.
Mr Henderson said the treasury had instructed GM to offer different terms of settlement to the bondholders compared with those offered to the United Auto Workers’ (UAW) retiree health fund (VEBA) and the treasury itself for the repayment of the loans advanced earlier this year.
Under the treasury guidelines, bondholders will receive a 10 per cent voting stake in GM in return for $US24 billion of their total debt of $US27 billion.
In contrast, the VEBA will hold around 40 per cent of the enlarged capital in return for exchanging $US10 billion of its liability in exchange for shares. The other half of the VEBA liability will be cashed out, as originally planned.
The treasury, however, will hold almost 50 per cent of the enlarged capital in return for exchanging half of what is expected to be a total of $US20 billion in debt by June 1.
The treasury’s strict guidelines have taken the issue out of the hands of GM’s board of directors.
“I don’t have to sell this plan to the bondholders,” Mr Henderson told reporters at a press conference.
“The prospectus for the debt conversion outlines their choices. It’s not for us to make recommendations to them.” Mr Henderson said he believed the terms of the debt exchange made it more likely that GM would go into bankruptcy.
“We would expect to file for bankruptcy if the debt exchange offer fails,” he said.
He said all the cuts in plants and workforce would give the company better use of its capacity and reduce costs such that it could be profitable – before interest and tax – as soon as 2010.
This forecast was based on the assumption that annual sales in the North American market recovered to about 10 million units next year. It has been running at between 15 million and 17 million units since 1995.
The assumption includes an estimate that GM’s market share could fall another 100 basis points from the 19.5 per cent expected for 2009.
Apart from dropping Pontiac and retaining only four brands – Chevrolet, Buick, Cadillac and GMC – GM will also slash the number of different models produced by those brands from 48 in 2008 to 34 by 2010.
“We have strong, new product coming for our four brands: the Chevrolet Camaro, Equinox, Cruze and Volt, Buick LaCrosse, GMC Terrain, Cadillac SRX and CTS Sport Wagon and Coupe,” Mr Henderson said.
“A tighter focus by GM and its dealers will help give these products the capital investment, marketing and advertising support they need to be truly successful.” As part of the new plan, GM will also shed 42 per cent of its North American dealer body, reducing numbers from 6246 in 2008 to 3605 by the end of 2010. This was 500 dealers and four years earlier than previously indicated, Mr Henderson said.
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