General Motors, once the colossus of American capitalism, will become a leaner, government-owned company if the Obama administration goes along with the automaker's plan to slash jobs, close plants and eliminate the legendary Pontiac brand.
As GM laid out the proposal Monday, new agreements fell into place between Chrysler and its unions in the United States and Canada, making it apparent that the future of both companies now rests with their creditors.
General Motors CEO Fritz Henderson said the company would offer the Treasury Department more than 50 percent of its stock to absolve GM of $10 billion in government loans.
The automaker also proposed that the United Auto Workers take GM stock for at least half the $20 billion the company owes to a union-run trust that will assume retiree health care expenses starting next year.
Combined, the union and government would own 89 percent of the century-old automaker, which has been bleeding red ink and is saddled with more than $62 billion in debt.
"It is unprecedented, but it signifies the importance of the automobile industry," said David Lewis, a retired professor at the University of Michigan who taught business history for 43 years.
Although the government has loaned money to corporations in the past, including to Chrysler in the 1970s, Lewis could not recall a time when it had taken a majority stake in a company.
White House position
White House press secretary Robert Gibbs said the administration does not want to own GM or any other auto company. "This administration has no desire to run an auto company on a day-to-day basis," Gibbs said. "We strongly back an auto industry we believe can, and should, be self-reliant of government funding."
But GM's plan depends on persuading unsecured bondholders who have loaned GM $27 billion to forgive that debt in exchange for a 10 percent stake in the company.
Current GM shareholders would own only about 1 percent. GM's announcement sent its shares up 21 percent to $2.04 Monday, meaning bondholders would get about 46 cents on the dollar. But that does not take into account dilution of GM's shares once the government and the union get their giant piece of the pie. Analysts estimated that the value was closer to 5 cents on the dollar.
General Motors is surviving on $15.4 billion in government loans, and said Monday in a filing that it envisions getting an additional $11.6 billion.
GM Chief Financial Officer Ray Young said that's all the company will need under its new plan. But if GM's restructuring plan cannot put all the pieces in place by June 1, the struggling company could go into bankruptcy protection.
Meanwhile, Chrysler is surviving only because of $4 billion in government aid. The company has until Thursday to adopt a partnership with Italy's Fiat Group and to devise a restructuring plan that satisfies the government so it can get an additional $6 billion.
Just hours before GM gave its progress report, Chrysler announced it had a tentative concession agreement with the UAW that had been blessed by the government. United Auto Workers President Ron Gettelfinger said the union's factory-level leaders voted unanimously Monday night to recommend that members approve concessions that could give a union-run trust 55 percent ownership of a restructured Chrysler.
Union leaders say ratification votes across the nation should be finished by tomorrow.
The deal, designed to keep the automaker out of bankruptcy, would see workers no longer get most of their pay if they are laid off but instead receive supplemental pay from the company equal to 50 percent of their gross base pay.
The Chrysler deal almost certainly will be the template for GM, although Young said negotiations with the union had not yet resumed in earnest. In addition, both companies have deals with the Canadian Auto Workers.
If successful, the plan for the government to own a majority of GM's outstanding common shares would wipe out $44 billion of GM's $62.4 billion debt.