Rescue Plan Would Give
U.S. Most of GM's Stock
Canada, UAW Also to Get Stakes, Sources
Say
By David Cho, Peter Whoriskey and Kendra Marr
Washington
Post Staff Writers
Wednesday, May 27, 2009
The United States and Canada would own nearly three-quarters of a
restructured General Motors, effectively nationalizing the border-straddling
industrial colossus as part of an overhaul plan that would put most of the rest
of the company in the hands of a union trust fund.
Sources said the plan, a bankruptcy reorganization proposal being drafted by
the Obama administration, would require the U.S. government to lend GM about $30
billion on top of the $19.4 billion it has already invested, giving it the
majority stake in the company. Canada is preparing to lend about $9 billion for
a smaller interest, according to the sources, who are familiar with the plan.
These figures would total nearly $60 billion, making the GM bailout one of
the largest corporate rescues since the current economic crisis began last year
and one of the largest reorganizations in history.
The sources cautioned that the negotiations are continuing and that the
totals could change.
GM moved closer to bankruptcy on two fronts yesterday. The automaker's
bondholders rejected a company request to forgo much of what they are owed in
exchange for a small amount of stock, making it likely that their differences
will have to be settled in court. Meanwhile, union leadership approved
concessions aimed at protecting labor's interest whether a filing is necessary
or not.
The government is taking on the ownership role at GM reluctantly, officials
have said, adding that it is not intended as a permanent situation. Nonetheless,
for the foreseeable future, the United States will have broad power over the
company, including its ability to appoint board seats.
In preparing GM for a trip to bankruptcy court, the U.S. government is
following the path set by Chrysler, which is hoping to emerge from the process
after a relatively short stay. Today, a federal bankruptcy judge is scheduled to
consider a critical motion that would allow a revived Chrysler to be formed from
the sale of most of Chrysler's assets to an entity led by Italy's Fiat.
Aside from the United States and Canada, which would control about 72 percent
of GM, the union's retiree health trust would hold a stake starting at 17.5
percent that could grow to 20 percent. The existing bondholders could end up
owning about 10 percent of the company.
One source said that the ownership breakdown was fluid and subject to
continuing negotiations before GM's expected bankruptcy filing on Monday.
Another person, who spoke on condition of anonymity because the discussions are
private, said some of the paperwork could be submitted by the weekend.
As the corporate behemoth moved to the brink of bankruptcy yesterday, there
was a flurry of activity among its stakeholders, primarily its bondholders and
its union, the United Auto Workers.
The bondholders had been given a deadline of 11:59 p.m. last night to agree
to a company offer.
The bondholders are owed $27 billion. GM had asked that at least 90 percent
of them agree to a deal under which they would drop their debt claims in
exchange a 10 percent stake in the company. But too many rejected the offer,
sources said yesterday.
GM's obligation to UAW retiree health care has weighed heavily on the
automaker as it has burned through cash. In 2007, the automaker committed $35
billion to the trust -- $20 billion in cash and $15 billion in other assets. The
value of the assets has fallen to $10 billion because of the unstable market,
according to a UAW document obtained by The Washington Post.
In exchange for halving its cash contribution, GM will give the UAW-run trust
17.5 percent of common stock with warrants to push the stake to 20 percent,
according to the document. The trust will also receive $6.5 billion in preferred
shares and a $2.5 billion note, which will be paid in three cash installments
through 2017. The trust fund plans to hold its stake until at least 2012.
"With a greatly improved balance sheet, as well as with significant
restructuring of business operations, there is a realistic prospect that the
stock in the new company will represent significant value in the future," said
the UAW document.
The trust will take over retiree health-care costs starting Jan. 1. It will
have one member on GM's board of directors, who will be required to vote in
accordance with the board's independent directors.
GM will continue to provide retiree medical benefits until the trust takes
over. But those benefits would be cut.
"The Treasury Department insisted that the benefits be immediately reduced to
reflect GM's difficult financial situation," said the document. The agreement is
up for a UAW vote in coming days.
The union's cost-of-living increases, along with some holiday pay, were
suspended. Yet UAW President Ronald A. Gettelfinger stressed that there would be
no reduction in the membership's base hourly pay, health care and pensions.
"We were able to slow the import of vehicles coming from China and other
foreign sources and put some of that work in two US plants originally schedule
to close," he wrote.
The 14-page document said GM would take back five plants from its auto parts
supplier Delphi, which is now in Chapter 11 protection. Some idled GM plants
would also be put to work if demand returns.
Most of GM's hourly workers will receive another buyout and early retirement
offer. Production workers will be offered $20,000, plus a $25,000 car voucher.
Skilled employees will be offered $45,000 plus the vehicle voucher.
The biggest buyout package, for employees with at least 20 years of service,
includes $115,000 plus the car voucher.
Staff writer Dana Hedgpeth in Detroit contributed to this report.