GM will slash dealers, 21,000 factory jobs, Pontiac brand

DETROIT -- If the government signs on to General Motors' new debt-reduction plan, it would become the automaker's second-largest shareholder, behind the United Auto Workers union.

The plan was rolled out Monday as part of new cost-cutting measures that include killing the Pontiac brand and closing several plants, cutting 42% of GM dealers, and stopping production of Saturn and Hummer vehicles by the end of this year.

The changes will make GM smaller, says CEO Fritz Henderson, but he's OK with that.

"I'm more focused on getting results than being big," he says.

Having the government as the company's largest shareholder is just a matter of life these days, Henderson says.

"I'm a believer in dealing with reality," he said at a press conference announcing the latest plan. "What we need to do is create a balance sheet that can support our recovery."

The U.S. Treasury, so far, has been acting more like "a private equity investor that has put a lot in our wagon," Henderson says, rather than a government trying to run an automaker.

General Motors proposes to cut 21,000 U.S. factory jobs by next year, phase out its storied Pontiac brand by 2010 at the latest and ask the government to take company stock in exchange for half GM's government debt as part of a major restructuring needed to get more government aid.

The company also said it plans to slash its dealership ranks 42% from 2008 to 2010, from 6,246 to 3,605.

The struggling automaker also says it will offer 225 shares of common stock for every $1,000 in notes held by bondholders as part of debt-for-equity swap.

GM is living on $15.4 billion in government loans and faces a June 1 deadline to restructure and get more government money. If the restructuring doesn't satisfy the government, the company could file for bankruptcy protection.

GM will ask the government to take 50% of its common stock in exchange for canceling half the government loans to the company as of June 1.

GM said the proposed exchange with bondholders would wipe away $27 billion in unsecured debt if successful. The company estimates that after the exchange, bondholders would own 10% of the company.

In addition, GM is offering the United Auto Workers stock for at least 50% of the $20 billion the company must pay into a union run trust that will take over retiree health care expenses starting next year.

All the stock offerings mean that current common stockholders would own only 1% of the company under the deals, the press release says.

The debt-for-equity swaps GM wants would reduce its debt by $44 billion from about $62.4 billion now

"We would be substantially less levered as a company," said Henderson.

Henderson said if the debt exchange isn't successful, he would expect to file for bankruptcy protection somewhere around June 1, but such a filing would be unlikely very long before the deadline.

GM said it would speed up six factory closings that were announced in February, although it did not identify them in its news release. Additional salaried jobs cuts also are coming, beyond 3,400 in the U.S. completed last week.

Including previously announced plant closures, the restructuring will leave GM with 34 factories at the end of next year, down from 47 at the end of 2008.

"The Viability Plan reflects the direction of President Obama and the U.S. Treasury that GM should go further and faster on our restructuring," Henderson said. "This stronger, leaner business model will enable GM to keep doing what it does best — provide great new cars, trucks and crossovers to our customers, and continue to develop new advanced propulsion technologies that are vital for our country's economy and environment."

The new plan lowers GM's break-even point in North America to an annual U.S. sales volume of 10 million vehicles, the company said. That's slightly more than the current sales rate, and 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," the statement said.

The Pontiac brand will be phased out no later than 2010, Henderson said.

The first Pontiac car was introduced 83 years ago. Within three years, half a million Pontiacs were sold, and the brand quickly grew in popularity, from early models like the Chief and the Master Six Coupe, to the Bonneville convertible, to the GTO — one of America's first muscle cars, so popular it was immortalized in a popular song.

But efforts in the last few years to market Pontiac as performance-oriented brand failed. The company had said it wanted to keep Pontiac as a niche brand with one or two models, but is buckling under tremendous government pressure to consolidate its eight brands, several of which lose money.

Henderson said in a news conference Monday that the company is just 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 tough because of the brand's heritage.

But Henderson said GM wants to develop a restructuring plan that doesn't have to be revisited.

"We only want to do this once," he told reporters.

Henderson said talks continue with 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.

"I don't expect we would be absent from the European market," he said, adding that it would be under a different structure than current ownership of Opel.

One of the conditions to get aid from Germany is to have a private investor in Opel. Chevrolet is one of the fast-growing car segments in Eastern Europe and Russia, he said.

Chrysler, which is living on $4 billion in government loans and is expected to get $500 million more, faces a Thursday midnight deadline to restructure and ink an alliance deal with Italian automaker Fiat. The government also wants Chrysler to exchange much of its $6.9 billion in debt for equity in the company, but with the deadline fast approaching, Chrysler and its secured debtholders remain far apart.

Both GM and Chrysler also must win concessions from the United Auto Workers union.

The UAW said late Sunday it reached agreement on concessions with Chrysler, Fiat and the U.S. government. Fiat CEO Sergio Marchionne was in the U.S. as talks continued for the automaker to take a 20% stake in Chrysler in exchange for its small-car technology.