By Mike Caggeso
GM's cost-cutting measures are perhaps its most encompassing since the company began its turnaround process. Among GM's announced restructuring plans:
- GM asked bondholders to exchange $27.2 billion of bonds for 10% of the equity of the restructured company. Bondholders would receive 225 shares of GM common stock for each $1,000 equivalent of principal amount.
- The top U.S. carmaker will close 17 assembly, power train and stamping plants by the end of 2012.
- It will reduce its hourly workforce from about 61,000 to 38,000 by 2011. It also anticipates job cuts among its salary and executive workforce.
- GM will reduce its number of dealers by 42% to 3,600 by the end of 2010.
- And the 101-year-old automaker will eliminate its Pontiac brand.
"We are taking tough but necessary actions that are critical to GM's long-term viability," GM president and Chief Executive Officer Fritz Henderson, said in a statement. "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."
These measures will help GM cut its structural costs by $55.8 billion by 2010.
The bond swap is the biggest of these measures, and it's one that isn't guaranteed to work. GM needs to exchange 90% of its bond amount to satisfy the U.S. Treasury.
And if it can't do that – or reach an alternative arrangement with the Treasury – by its June 1 deadline, GM said it expects to file for bankruptcy.
Chrysler Fighting Against the Clock
Meanwhile, GM's privately held rival Chrysler announced it reached tentative agreements with U.S. and Canadian auto unions – previously tall roadblocks to its restructuring efforts.
The Canadian Auto Workers union agreed to give up tuition rebates and its car-buying program. Base wages and pensions won't change. The CAW, which represents about 8,000 Chrysler workers in Ontario, said in a statement that 87% of its members voted in favor of rubber stamping the concessions.
Details of the new contract with United Auto Workers haven't been made public, and union members will vote on it Wednesday. Chrysler employs 26,800 UAW workers.
The U.S. government gave Chrysler a May 1 deadline to merge with Fiat SpA (OTC: FIATY) or enter bankruptcy protection.
Two weeks ago, Fiat Chief Executive Officer Sergio Marchionne said his company would walk away from merger talks with Chrysler LLC unless American and Canadian unions agree to take substantial pay cuts.
"The chances of them pulling this off are much better now," Erich Merkle, an independent auto analyst in Grand Rapids, Mich., told Bloomberg. "I wouldn't say they are completely out of the woods yet."
Chrysler is currently 80% owned by Cerberus Capital Management LP and 20% owned by Daimler AG of Germany, owner of Mercedes-Benz.
Chrysler still has to convince lenders to erase most of its $6.9 billion in secured debt.
News and Related Story Links:
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GM Accelerates its Reinvention as a Leaner, More Viable Company