Frtiz Henderson CEO of General Motors made the rounds today announcing the new restructuring plan of GM. He describe it as aggressive and they will come out leaner. He said the new restructure has 3 points:
1. they had to introduce a business plan that’s more stable and viable
2. they had to accelerate the Feb 17th restructuring plan due to the mandate placed on them by the treasury department
3. they had to strengthen their balance sheet; bond restructure; and have a solid plan for future investments
They will be getting rid of 4 brands: Hummer, Saab, and Saturn which will be completely phased out by the end of 2009; Pontiac will be over by 2010. He also announced an accelerated and larger plant closure from the former 47 to a 27 plants left in North America.
They want a break even mark at 10 million units, previously the break even was at 11.4 million units, but the treasury department did not agree with that. This is the 3rd restructuring plan. GM CEO says this is the final plan. It will focus on 4 core brands, giving up pontiac in the process. Pontiac has a history with the company as the muscle car and accounts for 10% of sales and profits. They think this restructure is more aggressive. They have until June 1 to comply with treasury mandates. The harshest part of the restructure comes at the expense of bond holders, who now hold 27 billion dollars in bonds. He wants to eliminate 24 billion dollars of that and they would only get a 10% equity stake. However, the UAW through viva payment would eliminate 20 billion dollars but get a 80% equity stake in the company, but only decrease 21,000 jobs. The treasury told them they would not support a recovery to bond holders over 10%.
The decision on the 4 core brands to remain, centered on fleet sales not regular consumer sales. They think they can maintain market share with the 4 core brands. They want to 3600 dealerships over the next 5 years. However, they can’t just tell dealerships, which are private companies to close. Franchise laws prevent a company from nixing a dealership. They are in place to protect the dealer. However, experts say GM is grossly over subscribed and has been for decades.
This is not a bankruptcy at all. They are simply caving into the treasury department and will not go to bankruptcy court. The bond holders can take them to bankruptcy court if they don’t like the 10% equity stake and devaluing their 27 billion dollars down to nearly under 10% of its value. At 27 billion dollars I don’t see how GM can avoid going to bankruptcy court over this.
I got the sense from reading the CEO’s face that this entire deal is simply to save his skin. Everyone agrees that GM needs to go to bankruptcy court and completely restructure the company, including the union contracts. The unions in this case are the ones making the company completely unprofitable. The obligations to the union are staggering. And, the company cannot move into new technologies in the automobile industry. Even under this proposed restructure they are not going to retool any of their remaining 27 plants.
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