"The bond exchange needs to be successful to avert bankruptcy," said Henderson
General Motors Corporation earlier today launched a bond exchange that TheDetroitBureau.com said would be unlikely to succeed. It is part of a larger restructuring proposal that, if it goes forward, would effectively turn control of the company over to the U.S. Treasury Department, with 50% of the shares in the new company, and the United Auto Workers union, which would hold 39% of it.
“Treasury and UAW would own 89% of the shares,” said GM CEO Fritz Henderson, who also announced that GM was planning to eliminate its tradition-laden, but marketplace moribund Pontiac brand by 2010, and accelerate the sale or closure of its Hummer, Saab and Saturn brands by the end of 2009.
“They (Treasury) want to make sure the company is run properly. But they have no interest in running the company,” said Henderson, adding the bond exchange will require further negotiations with the U.S. Treasury Department, the United Auto Workers, as well as well as with reluctant, some say hostile, bondholders.
“I’m just dealing with reality,” said Henderson, when asked about how he felt about becoming a government employee. Henderson also cautioned GM still faces the risk of bankruptcy. “It’s greater (now,)” he suggested. “It’s more probable we would go through bankruptcy,” he said. “The bond exchange needs to be successful to avert bankruptcy,” said Henderson, who said each bondholder is being offered 225 GM shares for every $1,000 of debt.
GM shares at mid-day were trading at $2 a share, down from a 52 week high of $24.
“Each bond holder will have to make their own choice,” he said.
GM also plans to close 40% of its dealerships in the U.S., Henderson said.
GM will now focus on four core brands in the U.S. – Chevrolet, Cadillac, Buick and GMC – with fewer nameplates and a more “competitive level of marketing support” per brand, something critics have for years said was needed. The question remains is this too little, too late?
GM North America (GMNA) projects that the latest plan will enable it to break even (on an adjusted earnings-before-taxes-and interest – EBIT- basis) at a U.S. total industry volume of approximately 10 million vehicles, based on the pricing and share assumptions in the plan, which optimistically assume that it can hold current share.
Henderson said the new GM could turn a profit by 2010, an assertion that no doubt is already being challenged by numerous skeptics.
“Our responsibility is clear – to secure GM’s future – and we intend to succeed,” said Henderson.
GM will now offer a total of 34 nameplates in 2010, if it survives, a reduction of 29% from 48 nameplates in 2008, reflecting both the reduction in brands and continued emphasis on ‘fewer and stronger” entries.