So, today’s big news from the US car industry wasn’t the culling of the Pontiac brand after all.
Instead, GM shocked the industry by revealing that the US government will hold at least 50 percent of the company’s ‘common stock’ as part of the its latest recovery plan.
When a government holds over 50 percent of a hitherto private company, and is set to shovel in over $25bn (£17bn) of tax payer’s money in order to keep it alive, we’re well into British Leyland territory.
Bondholders are being offered just 10 percent of their outstanding debts as part of the ‘new’ GM, while the autoworkers union – the UAW – will be offered 40 percent in exchange for GM being released from running the ruinously expensive healthcare fund for retirees.
There’ll also be a deeper cull of GM factories, more jobs and the extraordinary decision to half the number of GM brand dealerships to around 3500.
If all concerned don’t agree to this deal, Fritz Henderson - GM’s new boss – says the company will miss out on the upcoming $11bn (£7.5bn) injection of government cash and would then file for bankruptcy by June 1.
Primarily, GM needs to lose most of the massive debts that are hanging around its neck. By offering the up to the bondholders just 10 percent of what’s outstanding (as well as fixing the new health care deal), GM could reduce its liabilities by up to $44bn (£30bn).
The bondholders are understandably not too happy with the idea that they should lose 90 percent of their investment in GM. Cynics say this deal – pushed by the Obama government – looks like an ambush.
The first reaction of Wall Street was to scoff at the idea that GM’s Bondholders would take such huge losses. However, they’ve also got to calculate whether they would get much more than a 10 percent payoff should GM go bankrupt.
Even if this new restructuring plan goes ahead, it’ll be pretty extraordinary to see what was once the world’s largest carmaker 89 percent owned by the US treasury and the autoworker’s union.
However, the brutality of the GM restructuring reflects the lessons of history. In late 1974, when BLMC ran out of money – and couldn’t borrow anymore – the British government had to step and nationalise the company.
With 42 factories and 250,000 direct employees, British Leyland was a similar size to the pre-crunch GM. However, instead of slashing the company back to a manageable size, successive governments ploughed in billions to try and induce recovery.
Even Mrs T gave in to Sir Michael Edwardes’ request for a cool billion back in the early 1980s. And she didn’t finally get all of BL off the government books until 1989, when British Aerospace took over Austin-Rover.
By contrast, a radically re-sized GM may have a decent chance of becoming self-sustaining in the medium term, even in a much smaller new-car market.
If I was a bondholder, I’d agree to the 10 percent deal so long as the US treasury’s was willing to return shares in a profitable GM sometime in the future.
Anything less would look like the state was seizing private assets with minimal compensation.