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.
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.
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?