Finally Recession has taken its toll of GM employees. The GM has not only decided to phase out certain brands and also directly retrench employees. This is to prove their feasibility so that US Govt. assistance is sanctioned for their positive performance.
General Motors said it will cut 21,000 US factory jobs by next year, phase out its storied Pontiac brand and ask the government to take stock in exchange for half GM’s government debt as part of a major restructuring effort that would leave current shareholders holding just 1% of the company.
The struggling automaker said it will offer 225 shares of common stock for every $1,000 in notes held by Bond-holders as part of a debt for equity swap that aims to retire most of GM’s $27 billion in unsecured debt.
The announcements came in a filing Monday with the Securities and Exchange Commission. 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 go into bankruptcy protection.
GM said it will ask the government to take 50 percent of its common stock in exchange for canceling half the government loans to the company as of June 1.
In addition, GM is offering the United Auto Workers stock for at least 50% of the $20billion the company must pay into a union run trust that will take over retiree health care expenses staring next year. CEO Fritz Henderson said the objective of the bond exchange is to reduce GM’s $27 billion of outstanding debt by about $24 billion dollars. The company estimates that after the exchange, bondholders would own 10% of the company.
All the stock offerings mean that current common stockholders would own only 1 percent of the company under the deals, GM said. In pre-market trading, GM shares rose 16 cents, or 9.5%, to $1.85.
GM said it would speed up six additional 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 the 3,400 in the US 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 company also said it plans to thin its dealership ranks by 42% from 2008 to 2010, cutting them from 6,246 to 3,605.
The viability plan reflects the direction of President Obama and the US 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 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 US sales volume of 10 million vehicles, the company said. That’s slightly more than the current sales rate, and most economists expect an up-tick 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 Treasury, the statements said.