U.S. Expected to Own 70% of Restructured G.M.
DETROIT — The government will hold a large share of General Motors after
the company emerges from bankruptcy protection, and will provide G.M.
with about $50 billion in financing so that it can reorganize, people
with direct knowledge of the situation said Tuesday.
The Treasury Department will receive about 70 percent of the new G.M.,
while the United Automobile Workers union will hold 17.5 percent through
its retiree health care fund. The fund also would receive warrants for
an additional 2.5 percent of stock in the new G.M., with a price to be
determined later, potentially giving it a total of 20 percent.
That is about half of the stock that the U.A.W.’s fund, called a
Voluntary Employee Beneficiary Association, or VEBA, was expected to
receive under plans drafted this spring.
The figures were outlined to union leaders in Detroit, who met Tuesday
to consider a new agreement between the U.A.W. and G.M.
Bondholders will receive about a 10 percent stake of the new company,
and others will receive a smaller percentage, these people said.
G.M., which has already received $19.4 billion in financing from
Treasury, would get an additional $50 billion or slightly more in
debtor-in-possession financing, which it would draw upon during its
The Treasury plans to create a new version of G.M. with its most
attractive assets, like Chevrolet, Cadillac and some of its
manufacturing operations. The rest of G.M. would be sold or liquidated.
G.M. is expected to seek Chapter 11 protection on Monday, the deadline
set by the Obama administration for the company’s overhaul, although the
initial set of papers could be filed during the weekend, allowing for
the first court hearings next week, these people said.
The $50 billion-plus figure includes $7.6 billion that G.M., which drew
an additional $4 billion in federal financing on Friday, told the
Treasury last week that it would need to operate after June 1.
Assuming the government’s plans come about, the Treasury would own 70
percent of G.M. and share a 10 percent stake of Chrysler with the
Canadian government, once the two companies emerge from bankruptcy
protection. G.M.’s shares ended at $1.44 a share on Tuesday, up a penny
from Friday’s close.
G.M. is awaiting the results of an exchange offer with its bondholders,
who must decide by 12:01 a.m. on Wednesday whether to exchange $27
billion in bonds.
Few bondholders are likely to accept the offer, which called for them to
receive about 41 cents for each dollar in bonds. G.M. has said it would
seek bankruptcy protection if it does not receive 90 percent support
from bondholders, which analysts saw as a near impossibility.
Greg Martin, a G.M. spokesman, declined to predict the outcome. He said
G.M. would make an announcement before the market opened on Wednesday.
“If the bond exchange is unsuccessful or any of the minimum conditions
are not satisfied, then G.M.’s board will meet to discuss next steps,”
Mr. Martin said.
The Treasury has continued negotiations with an ad hoc group
representing bondholders with about 25 percent of G.M.’s debt, and may
try to reach an agreement with this group before the company seeks
bankruptcy protection, the people with direct knowledge of the situation
G.M. owes about $20 billion to the employees’ beneficiary association,
which would take responsibility for health care benefits to G.M.
retirees and their spouses.
The offer to the U.A.W., outlined Tuesday, would place 17.5 percent of
the stock in new G.M. in the association. The health care fund also
would receive a $2.5 billion note from the new company, as well as $6.5
billion in preferred stock paying a 9 percent cash dividend, for a total
of $9 billion in cash.
The union also is receiving warrants representing 2.5 percent of the
stock in the new G.M., with a strike price to be determined later.
In a regulatory filing last month, G.M. said it planned to give the
U.A.W. $10 billion in cash and a 39 percent stake in the company to
cover its shortfall. That would have left about 51 percent of G.M. under
the Treasury’s control.
But the government decided it wanted a bigger share, these people said,
given the size of its investment.
Moreover, bondholders were displeased that they were offered only 10
percent of G.M. for their $27 billion in debt, while the U.A.W., whose
obligation was less, was in line to get significantly more.
The changes involve “painful, unprecedented sacrifices” for union
workers, U.A.W. officials told members in a summary distributed to plant
“Faced with this dire situation and realizing failure to meet the
government requirements would surely mean the end of General Motors,
your bargainers painstakingly put together modifications to the
collective bargaining agreement to satisfy the Treasury Auto Task
Force,” the summary said. “Considering the alternatives, we urge a ‘yes’
vote in factor of ratification.”
The plant leaders who met Tuesday morning in Detroit voted unanimously
to recommend that their members support the deal.
The union persuaded G.M. to reduce the number of vehicles it will import
from low-wage countries like China. G.M. agreed to retool two previously
closed plants in the United States so that they can stamp metal for and
build as many as 160,000 compact and small cars a year. G.M. also agreed
not to increase production in Mexico by reducing production of similar
vehicles in the United States.
Three assembly plants and one stamping plant would be put on “standby,”
to be reactivated if market demand increases beyond current projections.
Nearly all of G.M.’s hourly workers will receive another buyout and
early retirement offer. Production workers eligible to retire would
receive $20,000 and a $25,000 discount voucher toward a new vehicle,
which is similar to the terms that 7,000 workers accepted in March.
Workers with at least 20 years of seniority who agree to give up future
benefits would receive $115,000 plus a voucher, which is far greater
than the March offer.
G.M. will assume ownership of five plants — two in western New York, two
in Michigan and one in Indiana — operated by the Delphi Corporation, its
bankrupt former parts division.
Retiree benefits will be reduced as of July 1, at the direction of the
Treasury, the union said. At that time, pending court approval, retirees
will lose vision and dental coverage, among other changes.
After Jan. 1, retiree benefits will be paid by the trust fund, which
currently contains about $10 billion. G.M. had sought to move up the
date when the fund takes effect but in the end agreed to keep the
original time table, the union said.
The dwindling of the beneficiary association fund alarmed union leaders,
who agreed to establish it in two sets of negotiations during the last
four years. G.M. at one time thought that investments in the association
would grow to cover its $70 billion liability, once the U.A.W. assumed
control of the fund early next decade.
But the fund has lost 30 to 40 percent a year, instead of the 9 percent
growth that G.M. initially anticipated, people with knowledge of the