General Motors Moves to Cut Jobs and Trim Its Product Line

May 8, 2009

In a recent announcement filed with the Securities and Exchange Commission, the General Motors Corporation stated that it plans to eliminate a staggering 21,000 U.S. manufacturing jobs by 2010.

It also confirmed its intentions to phase out its Pontiac brand. Both measures have come about as part of the ailing automaker’s attempts at staying alive and avoiding bankruptcy. The restructuring effort is required to receive further government assistance.

Additionally, the company plans to request that the federal government purchase company stock in order to reduce its debt in half. Specifically, GM is offering 225 shares of its common stock for every $1,000 in notes currently held by bondholders as part of a debt-for-equity swap.

With the June 1st deadline approaching, GM is facing the loss of its $15.4 billion in government aid if it is unable to provide a viable restructuring plan. Should the plan fall through or fail to satisfy government officials, the automaker will be forced to seek bankruptcy protection.

In a recent press release, General Motors representatives stated that once the June 1 deadline expired, they would ask the federal government to assume ownership of approximately 50% of its common stock in exchange for cancelling half of the outstanding government loans issued to the company.

GM representatives also stated that the proposed bond exchange would make it possible to eliminate $27 billion in unsecured debt, if the sale went according to plan. The bondholder would have a 10% stake in the automotive company according to some inside estimates.

General Motors also reached out to the UAW by offering the union company in exchange for at least 50% of the $20 billion that it will be required to pay into a union-created trust in order to finance the transfer of retiree health care expenses starting in 2010.

With all the stock purchasing activity it is worth noting that the press release stated that most current common stockholders would only own about 1% of the company under the proposed plan.