Pontiac & 21,000 Jobs Will Go; Bondholders Still Blocking GM & Chrysler

April 27th, 2009

The New GM Plan
GM put forth its latest (maybe last) plan for restructuring at Fritz Henderson’s press conference this morning. Both Pontiac and the jobs at 13 factories will be phased out by 2010, he said, and Treasury would own at least 50 percent of the company.

1968 Pontiac GTO

1968 Pontiac GTO

When asked how he felt about this kind of government control, Henderson responded, “I’m a believer in dealing in reality. We’ve gotten great support from the Treasury. It has viewed this matter from day one as a kind of private equity investment. It has pushed us in a lot of ways.”

Throughout, the CEO was forthright and responsive to questions. You can watch the whole thing here:

The big challenge, he acknowledged, was the debtholders, who have so far balked at the settlements offered. GM now wants them to accept a debt-for-equity deal that would give them 225 stock shares for every $1,000 of bondholder debt. In the end, this translates to a 10 percent equity stake (the $27 billion of GM debt exchanged for $24 billon). The U.S. and UAW would divide the remaining 89-90 percent, with probably 39 percent going to the union and its VEBA fund.

Bam: Take that, bondholders, and if you don’t, you will probably do worse in bankruptcy. Fritz indicated that even now he thinks bankruptcy is probable if the bondholders can’t come to terms.

Saturn and Hummer will be out in 2009 (talks with the Saturn dealers are going on, as we reported earlier), 2,600 dealers will go, plus the 21,000 workers by 2011.

There will be cries of anguish, mostly about Pontiac, but it was always a niche brand, and GM never followed through on marketing the few good cars they make.

Chrysler’s Predicament

2010 Dodge Challenger

2010 Dodge Challenger

Now, from Slate’s Matthew DeBord comes an excellent summary of the situation faced by Chrysler’s bankers and the government’s strategy of hardball in the game of “bankruptcy chicken,” as he calls it. He thinks a Chrysler partnership with Fiat looks likely, and the UAW, pending a membership vote, has agreed to cut its benefit trust fund in half (taking half in stock).

This leaves Chrysler’s bankers and their $6.9 billion in secured debt, on which they have been exceptionally reluctant to take a haircut. The government’s proposed terms have been rough: sacrifice $5.4 billion and take a 5 percent ownership stake. The debt holders want much more, but on Friday they signed onto the Fiat deal and abandoned efforts to get the Italian carmaker to kick in money.

As DeBord points out, there is no little irony in Treasury’s strategy. It’s trying to leverage the investment, meager as it was, it already made in Chrysler and the $6 billion the company will get if the reconstruction deal gets done—it’s playing this deal like the investment bankers themselves.

They have three days to do it.

Which company do you think will make it through without bankruptcy—GM or Chrysler? Could it be both?

—jgoods

Be Sociable, Share!

  1. Norm Davis
    | #1

    As a Pontiac collector, and lover of all things Muscle, I’m sad to read about this decision but not a bit surprised. GM has thumbed it’s corporate nose at American car buyers for the last 30 years by reducing options, reducing quality, adding features useful only to people who hate to drive, and raising the cost to cover their outrageous union agreements. You need only look at the success of the Corvette to know that American tastes in well-built iconic road-tuned vehicles have not altered one bit. But GM, and to a great extent Ford and Chrysler, ignored the history of their own products and aimed low. What we got were boring, oversized generic vehicles that made people think they were getting “a lot of car” for the money. Who makes an FWD that you can really take off-road anymore? Is there really any practical reason to own a Hummer?

    What’s really a shame is that the American auto workers had to be dragged along on this sorry ride. They played their hand as best they could, but the Big 3 concessions just added an average of $2000 to the cost of every car produced in this country. The Asian and European car makers swooped in with better products, lower costs, reliable service, lower insurance rates, and generally better reputations. So now we have a obsolescence issue. Do we let the industry die, and trust the auto workers to find new skills, in much the same way as barrel-makers and blacksmiths? At some point, we may have to accept the fact that America is not the world’s best producer or innovator of cars anymore. Or, will this be wake-up call to all companies: listen to your constituency, design ahead of the curve, control costs, be transparent.

  2. jgoods
    | #2

    @Norm Davis
    Very well said, Norm. These indeed are the issues ahead.

  3. James Steelman
    | #3

    I concur with you Norm pretty much on all of it. Being from the Motor
    City, and definately a fan of all things muscle, especially Pontiacs, it saddens me to see them go, but I am not surprised. The only things I could add to your comment would be, I hoped GM would have invested more heavily in Pontiac for several reasons. They were always on the cutting edge of affordable style and performance, and they could have done a much better job at bringing back the GTO if they would have stuck with the 1999 prototype. There are a slew of mistakes that they made, and unfortunately, the auto industry here in Detroit has created this monster that now is well out of control. I would have liked to seen Buick get the ax, and keep Pontiac. But hey, I don’t run the world.

    Additionally, although I am from Detroit, I am not a fan of the unions either. They have literally done nothing but drive up the cost of substandard veichles with employees encouraged to do shoddy workmanship at best for years. I have personally have known many in the industry, and it seems that the industry encouraged this type of behavior. There definately needs to be much more accountability across the board no doubt.

    I would only hope to believe that America would not abandon the automotive industry. It deserves (even as screwed up as it is) help when it needs it. This industry literally has not only put our country, but the world in motion. It needs help. I don’t have all the answers, but I believe it can not only survive, but thrive if approached properly. Albeit, there must be proper checks and balances, sacrifices and as you said, “transparency” thoughout all ranks.

    My main concern, being from here, is not only the immediate effect that we all are feeling in Michigan, but the ripple effect that this will send throughout the country should GM or others go under. Make no mistake, if the auto industry goes down, so does the rest of this country. I really think that to be true, but again, its my opinion; and we know opinions are like bellybuttons, everyone has one! lol…for what it’s worth, that’s my two cents!

  1. No trackbacks yet.
You must be logged in to post a comment.