GM (GM) has unveiled a last ditch plan to stave off bankruptcy. It would essentially involve a big debt-for-equity swap that would leave current shareholders with just 1% of the company (that’s 1% more than they might’ve gotten in a banruptcy) and it would give the company’s largest creditor — you, the taxpayer — a 50% holding in the common.
Other changes include the phaseout of Pontiac and 21,000 more job cuts.
More points from the release:
–Lower structural costs, which GM North America (GMNA) projects will enable it to breakeven (on an adjusted EBIT basis) at a U.S. total industry volume of approximately 10 million vehicles, based on the pricing and share assumptions in the plan. This rate is substantially below the 15 to 17 million annual vehicle sales rates recorded from 1995 through 2007.
— Another important part of improving the balance sheet will be the ongoing discussions with the UAW to modify the terms of the Voluntary Employee Benefit Association (VEBA), and with the U.S. Treasury regarding possible conversion of its debt to equity. The current bond exchange offer is conditioned on the converting to equity of at least 50% of GM’s outstanding U.S. Treasury debt at June 1, 2009, and at least 50% of GM’s future financial obligations to the new VEBA. GM expects a debt reduction of at least $20 billion between the two actions.
In total, the U.S. Treasury debt conversion, VEBA modification and bond exchange could result in at least $44 billion in debt reduction.