General Motors is closer than ever to bankruptcy after it yesterday revealed its last-ditch plan to avoid having to restructure with court protection.
Under its latest proposals, GM has said it would emerge from its reorganisation with the US government as the majority shareholder, while the powerful United Auto Workers union (UAW) would have a 40 per cent stake. Current GM bondholders would get roughly 10 per cent of GM’s equity in exchange for their debts. Existing GM shareholders would make up just one per cent of stocks.
The plan would also involve the axe falling on a further 21,000 jobs and the closure of 10 US factories, as well as the death of the Pontiac and Saturn brands. Hummer could also be killed off.
Fritz Henderson, GM’s CEO, told reporters that if the debt exchange offer failed to reduce the company’s $27bn (£18.6bn) debts to bondholders by 90 per cent, or if any other aspect of the recovery plan failed, GM would be forced to file for Chapter 11 bankruptcy protection.
"The bond exchange needs to be successful for us to avoid bankruptcy," Henderson said. "It's not impossible, but bankruptcy is now more probable."
The White House yesterday cautiously backed GM’s plans to avoid Chapter 11, but carefully distanced itself from the contentious issue of state ownership.
"We strongly back an auto industry that we believe can and should be self-reliant," said Robert Gibbs, an official White House spokesman. "It is not our desire to either own or run one of the auto companies."