Finance Globe

U.S. financial and economic topics from several finance writers.
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GM Announces Aggressive Plan to Avoid Bankruptcy

Struggling auto giant General Motors announced a plan on Monday to exchange 225 shares of common stock for every $1000 of outstanding notes in an effort to reduce its debt costs - "a vital component of GM's overall restructuring plan to achieve and sustain long-term viability," as stated by the company. In addition to the exchange, GM will also pay, in cash, any accrued interest on the outstanding notes.

The exchange will commence only if 90% of bondholders agree to the terms. The company expects to file for bankrupcty protection if it cannot enough participation by June 1, 2009.

General Motors also announced today its revised plan to focus on four core brands in the U.S. - Chevrolet, Cadillac, Buick, and GMC. The Pontiac line will be phased out by the end of 2010 and the Saab, Saturn, and Hummer brands are to be sold or phased out by the end of 2009 at the latest.

Under pressure from President Obama to restructure more aggressively to return to profitability, the automaker will reduce the number of dealerships, plants, and jobs further and faster than outlined in their February 17 plan submitted to the Treasury.

The 99-year old auto company plans to cut an additional 500 dealerships in the revised plan, cutting the total number of U.S. dealerships by 42%.

The new plan expects labor costs to be trimmed from $7.6 billion in 2008 to $5 billion in 2010 for a 34% savings. To accomplish this, hourly employment will be cut from 61,000 in 2008 to 40,000 in 2009 - 7,000 to 8,000 more than the earlier plan. GM expects the job cuts to level off at 38,000 in 2010.

The company expects these moves to reduce structural costs by 25%, from $30.8 billion in 2008 to $23.2 billion in 2010. This will allow GM to break even on a U.S. volume of 10 million automobiles. (From 1995 to 2007, the annual sales rates were around 15 to 17 million.)

The automaker also anticipates a reduction in salaried and executive employees as it continues to assess and restructure to become profitable.

"We are taking tough but necessary actions that are critical to GM's long-term viability," said Fritz Henderson, GM president and CEO. "Our responsibility is clear - to secure GM's future - and we intend to succeed. At the same time, we also understand the impact these actions will have on our employees, dealers, unions, suppliers, shareholders, bondholders, and communities, and we will do whatever we can to mitigate the effects on the extended GM team."

GM shares rose about 20% upon the announcement and were $2.05 as of the writing of this article.

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Monday, 22 April 2024

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