Detroit — General Motors, once the colossus of American capitalism, will become a leaner, government-owned company if the Obama administration goes along with the automaker’s plan to slash jobs, close plants and eliminate the legendary Pontiac brand.
As GM laid out the proposal Monday, new agreements fell into place between Chrysler and its unions in the United States and Canada, making it apparent that the future of both companies now rests with their creditors.
General Motors CEO Fritz Henderson said the company would offer the Treasury Department more than 50 percent of its stock to absolve GM of $10 billion in government loans.
The automaker also proposed that the United Auto Workers take GM stock for at least half the $20 billion the company owes to a union-run trust that will assume retiree health care expenses starting next year.
Combined, the union and government would own 89 percent of the century-old automaker, which has been bleeding red ink and is saddled with more than $62 billion in debt.
“It is unprecedented, but it signifies the importance of the automobile industry,” said David Lewis, a retired professor at the University of Michigan.
Although the government has loaned money to corporations in the past, including to Chrysler in the 1970s, Lewis could not recall a time when it had taken a majority stake in a company.
White House press secretary Robert Gibbs said the administration does not want to own GM or any other auto company.
“This administration has no desire to run an auto company on a day-to-day basis,” Gibbs said. “We strongly back an auto industry we believe can, and should, be self-reliant of government funding.”
But GM’s plan depends on persuading unsecured bondholders who have loaned GM $27 billion to forgive that debt in exchange for a 10 percent stake in the company.
Current GM shareholders would own only about 1 percent.
GM’s announcement sent its shares up 21 percent to $2.04 Monday, meaning bondholders would get about 46 cents on the dollar. But that does not take into account dilution of GM’s shares once the government and the union get their giant piece of the pie.
Analysts estimated that the value was closer to 5 cents on the dollar.
General Motors is surviving on $15.4 billion in government loans, and said Monday in a filing with the U.S. Securities and Exchange Commission that it envisions getting an additional $11.6 billion.
GM Chief Financial Officer Ray Young said that’s all the company will need under its new plan.
But if GM’s restructuring plan cannot put all the pieces in place by June 1, the struggling company could go into bankruptcy protection.
Meanwhile, Chrysler is surviving only because of $4 billion in government aid. The company has until Thursday to adopt a partnership with Italy’s Fiat Group SpA and to devise a restructuring plan that satisfies the government so it can get an additional $6 billion.
United Auto Workers President Ron Gettelfinger said the union’s factory-level leaders voted unanimously Monday night to recommend that members approve concessions that could give a union-run trust 55 percent ownership of a restructured Chrysler LLC.
Comments
jmadison 4 years ago
This agreement would prevent GM from going into bankruptcy court where the union would have to face possible rewrites of their contracts by a federal bankruptcy judge. The bondholders would get hosed big time by this deal. The upshot of this deal would put GM's unions in control of the company along with Obama.
just_another_bozo_on_this_bus 4 years ago
Yea, but if the unions are in control, they'll likely have to make concessions (i.e., rewrites,) anyway, just to protect their investment.
toe 4 years ago
I would never buy a car from a government owned car company.
75x55 4 years ago
Fascism marches on...
Newell_Post 4 years ago
This is just so wrong on so many levels. Keeping the banks out of default is one thing, but buying out a failing car company is completely different. The Brits tried this over and over again and it never worked. They got hosed every time. Chapter 11 is the right answer for GM and the taxpayers.
Agnostick 4 years ago
75x55 (Anonymous) says…
Fascism marches on…
Really? How do you figure?
snap_pop_no_crackle 4 years ago
The moon "could" turn into butter and fall on our pancakes.
Wallythewalrus 4 years ago
Wow, the government invested less than the bondholders, yet grab 50% of the company and give 40% to the Unions. The investors get 10%. Talk about a power grab. Talk about screwing the investors. Well, I guess the Unions are getting their campaign contraband, I mean contributions, kicked back to them.
Agnostick 4 years ago
Wally... where are you getting your numbers from?
If you bought 1,000 shares of GM stock on December 23, 1993, you paid an adjusted price of $43.65/share. Suppose the government buys some of your stock today, at yesterday's closing price of $2.04? You've lost more than $40/share. Is that the government's fault, Wally?
http://www.gm.com/corporate/investor_information/stock_perf/hist_price.jsp
That's a $40,000 loss, Wally. Whose fault is that? Bush? Clinton? Obama? Or is that a function of the free-market, capitalist system folks like you worship at?
"GM said that it will ask the government to take more than 50 percent of its common stock in exchange for canceling half the government loans to the company as of June 1. The swap would cancel about $10 billion in government debt."
Source: http://news.yahoo.com/s/ap/20090427/ap_on_bi_ge/us_gm_plan
Any of the "drive-by" posters (Wally, snap, 75x55 etc.) even bothering to read this?
"GM... will ask the government..."
This isn't fascism--this is corporate desperation.
A chain of desperation set in motion last fall, when auto executives boarded private jets and flew to Washington, walking into the Capitol, begging for a handout. There were no government officials kicking doors down in Detroit.
Get a clue, folks.
Agnostick agnostick@excite.com
75x55 4 years ago
Hitting closer to home now, isn't it?
Agnostick 4 years ago
Whose home, 75x55? Dare you speak plainly? :)
75x55 4 years ago
Lookin' forward to all the "green" trains running on time, yes we are.
Katara 4 years ago
snap_pop_no_crackle (Anonymous) says…
The moon “could” turn into butter and fall on our pancakes. ~~~~~~~~~~~~~~~ No, no, silly. Everybody knows that the moon is made of green cheese. At worst, it could crumble up and fall into our arugula salads.
Agnostick 4 years ago
Stick to trains if you want... I'm saving for a new Toyota or Honda or Ford hybrid... or maybe even one of the lower-priced Tesla sedans, once they hit the market in 2012 or 2013!
Those could be some really sweet rides!
75x55 4 years ago
"Really? How do you figure?"
How can you miss it? Oh, that's right - that "island" of centrists.... between left and right....
'Fascists explicitly promoted their ideology as a "Third Position" between capitalism and communism.'
In regards to this particular story about GM - try 'corporatism' on, and see how it fits.
Nothing new in the wide wide world of big authoritarian government systems - just a slightly different flavor for the times....
Agnostick 4 years ago
So, where's all your disgust and disdain for the GM top managment, the board of directors... the ones that flew to Washington D.C. and begged for the handout?
Or are you blind on one side?
Try opening both eyes, and looking at the entire picture...
75x55 4 years ago
Class envy is so.... proletarian.
Which is worse - flying a corporate jet to a destination for business purposes, or flapping an empty 747 over NYC for a photo op - and then pretend you didn't know it was going to happen....?
georgeofwesternkansas 4 years ago
The Unions are getting 40% of a government owned/run company. Man are they getting hosed, they will all be out of work very soon...
75x55 4 years ago
How is that, george?
The government will continue to pump in OUR money in order to keep their union employees on the dole, and keep those votes rolling in for the 'correct' party.
Same as getting fewer and fewer people actually paying taxes, so that they'll be happy little voters for the party of sugar daddy.
VTHawk 4 years ago
Since when has any government-run agency been "lean"?
This is nothing other than the Democrats buying off their base, and (once again) preventing capitalism from working. Bankruptcy is a natural part of Capitalism, but rather than letting GM and Chrysler get picked apart, the government would rather run the show to keep their union buddies from making any concessions. Is there any doubt that GM and Chrysler will continue getting $1B per month or more in bailouts?
I do hate to say it, because the terms are so over-used, but this does look an awful lot like (economic elements of) fascism. The government will bail out and run companies that benefit their supporters, and let fail the companies that don't. Losses go on the books of the government, but gains are privatized. Liberals AND conservatives should be howling about this plan.
Sigmund 4 years ago
"GM could become leaner, government-owned firm"
Right, because we know how good the government is at running "lean and mean" operations. This is a huge waste of your tax dollars. It was a waste in the Bush Administration and it is a bigger waste in the current one.
Newell_Post 4 years ago
I think I've owned 7 GM vehicles in my life but never again, even though they did actually improve over the garbage they sold in the 80s and early 90s. Some of that stuff was unbelievably bad....
TacoBob 4 years ago
Wow, the new government cheese.
Perhaps GM cars will replace food stamps.
Sometimes it pays to be on the dole.
Godot 4 years ago
Poor Ford. Obama will punish Ford for not partaking of his unconstitutional TARP largesse. Prepare for Federally mandated credits and good deals for buyers of Government Motors pieces of crap cars that will drive Ford good cars out of the market.
Change we will regret.
Godot 4 years ago
From this day forward, shun GM.
snap_pop_no_crackle 4 years ago
Worth repeating:
“28 March 2009 at 6:40 p.m. beobachter (Anonymous) says… …Ok, I'm done, you don't need to ban my account, I won't be back.”
xbusguy 4 years ago
As a last resort, GM could build cars people want to buy>... of course being government owned, the 2010 models would be delivered around 2050.
xbusguy 4 years ago
Wow, how is that new government GM model doing?? Don't know yet... they had a shortage of steering wheels, but I did get a free coupon for one when they come in.
Sigmund 4 years ago
The 2012 Pelosi GTxi SS/RT Sport Edition, from the Congressional Motors division of GM!!!! http://www.youtube.com/watch?v=rAqPMJ...
snap_pop_no_crackle 4 years ago
When was the last time adding a layer of federal bureaucracy made something leaner?
jumpin_catfish 4 years ago
Better wake up America, your country is being stolen.
Agnostick 4 years ago
75x55 (Anonymous) says…
"Class envy is so…. proletarian.
"Which is worse - flying a corporate jet to a destination for business purposes, or flapping an empty 747 over NYC for a photo op - and then pretend you didn't know it was going to happen….?"
You think "class envy" is bad? How about flat-out lying? Apparently, that's okay with you, as long as it justifies your misplaced rage against the ol' "guhvmint."
Try to grasp this concept again, with whatever feeble brain cells you have left--I can't be here to guide you to The Truth on a daily basis:
This is not "fascism" of any flavor, shade, strip, nuance or hue. This is a corporate takeover initiated by the executives who ran their companies into the ground... the result of decade after decade after decade of poor business strategies, shoddy product development and execution, and above all, resistance to change.
Now, if you want to subscribe to the notion that when approached by the suits, Congress and the White House should've said "No! You made the mess--you deal with it yourselves!"... well, that's a more accurate depiction of the scenario.
But "fascism?" "Takeover?" Hardly.
This makes you and those that subscribe to your fantasy, nothing more than shrill corporate apologists... nothing more.
Neither of the examples you give above are going to win Nobel Prizes anytime soon.
A far worse idea, is lying and twisting the truth... which you and others consistently do, for your own prurient self-satisfaction.
But no... don't let the facts get in the way of your little anger orgy...
--Ag
75x55 4 years ago
"When was the last time adding a layer of federal bureaucracy made something leaner?"
Other than our wallets?
snap_pop_no_crackle 4 years ago
I (heart) ag when he's being all stern & judgemental & stuff. More fun than a county fair.
75x55 4 years ago
snap - is that the fair that has the 'Moderate Centrist Tilt-O-Whirl" ride?
That's a rough one - seems to leave people foaming and staggering off to their left side....
Newell_Post 4 years ago
The British tried this repeatedly with car companies and motorcycle companies. It never worked, and just cost the British taxpayers huge sums. GM has been failing for decades and we should have never propped it up. If they can work out their issues through Chapter 11, then OK. If not, then liquidate.
Generally speaking, I think Obama has done a good job, but this one is purely quid pro quo for the UAW and other unions that funded his campaign.
Wallythewalrus 4 years ago
Drive- by? "If both are successful, the government and UAW health care trust would own 89 percent of GM stock, with the government holding more than a 50 percent stake, CEO Fritz Henderson said in a news conference at GM's Detroit headquarters." From your provided web link AGNOS! Also as stated in the above story. What about the GM Bond holders that invested 27 million while the government only invested about 10 million then took 50% of the common stock? Sounds like a power grab that only the "DOM" Obama could get away with.
snap_pop_no_crackle 4 years ago
Didn't Stalin do something similar in the Ukraine?
camper 4 years ago
Declaring bankruptcy is not exactly a bed of roses either. There certainly is government intrusion here.....by the courts who must approve a reorganization plan. And if GM declares bankruptcy, so will a number of suppliers and contractors who provided goods and services before the bankruptcy date. These "accounts payable" would be put on hold until after bankruptcy emergence, and then it is normally a negotiated settlement or percentage of what is owed. Just imagine if you were a contractor who re-roofed a plant, you just might be out of luck if GM has not yet cut you a check.
camper 4 years ago
And I don't see the bankruptcy process as a normal part of capitalism. True capitalism would be liquidation in these instances....let GM liquidate and let the strong survive.
I don't necessarily disagree with the bankruptcy option (or process) though because the US, I believe, is one of the few country's who offer this lenient approach that can help good companies and individuals get back on their feet. But I also believe it should be avoided when possible. This is why I am open to Obama's plan during this unique time...if you will.
TacoBob 4 years ago
When our government starts picking the winners and losers in the private sector, using our money, we all should start to worry.
The hand that holds you is the hand that holds you down.
snap_pop_no_crackle 4 years ago
I suspect that the UAW won't be satisfied for long when they realize what pigs in pokes they've been given as their payoff for helping grease Barry's way into the White House.
Sigmund 4 years ago
Newell_Post (Anonymous) says… "The British tried this repeatedly with car companies and motorcycle companies. It never worked, and just cost the British taxpayers huge sums."
snap_pop_no_crackle (Anonymous) says… "Didn't Stalin do something similar in the Ukraine?"
75x55 (Anonymous) says… “When was the last time adding a layer of federal bureaucracy made something leaner?”
Interesting query's which begs the question, "Did Communism ever build any good cars?" which BBC2's Sir Jeremy Clarkson and Dame James May endeavored to answer by trying to find the best car built under Soviet style Communism and the British style Communism of Red Rob and British Leyland.
Part One: "Ownership of a rev counter is theft from the masses, you decadent capitalist pig!" http://www.youtube.com/watch?v=IPd8CrhiOug
Part Two: "The Morris Marina: The log laid by British Leyland after Communism crept on to the shop floor." http://www.youtube.com/watch?v=l10wDTQ36hE
camper 4 years ago
Who is Barry? I keep seeing this name on these blogs, but can't figure. Oh, Maybe it is the President. Reminds me of the the Democrats who stooped low an called George Bush "W". Makes me think the far left and right are often the same bird, just different wings.
TheStig 4 years ago
“Imagine a forty year old Italian design improved by the Russians and now built by a bunch Egyptians. I can't think of anything worse than that!” Obviously Comrade Clarkson has never driven a K-Car.
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