Workers assemble a Pontiac Solstice at the General Motors Wilmington, Delaware plant in 2005.

General Motors Corp., working to stave off a June 1 US-backed bankruptcy, stepped up dealer shutdowns and job cuts and offered equity to bondholders under a plan to reduce liabilities by US$44 billion.

Chief Executive Officer Fritz Henderson needs the debt reduction and savings so the largest US automaker can restructure outside of court and avoid being forced into bankruptcy protection in 35 days. He is still seeking an agreement to trim obligations to a union health-care trust.

“Today’s bond exchange filing represents an important step in GM’s effort to restructure,” the Obama administration’s auto task force said in a statement. “The administration has made no final decision regarding the treatment of its current loan to GM or with respect to any future investments in the company.”

GM said 90 percent of the bondholders need to accept the exchange offer for the company to avoid bankruptcy.

GM surged 53 cents, or 31 percent, to $2.22 at 9:41 a.m. in New York Stock Exchange composite trading. The shares touched $2.25 earlier for a 33 percent advance that was the most in intraday trading since November 26.

Trimming dealers

The dealership reductions accelerate a plan that originally called for a 34 percent trim by 2014. The US union workforce will fall to 40,000 by the end of next year from 62,000 in 2008. The earlier target was for 46,800 positions.

The Pontiac brand will be eliminated, also by the end of 2010, and talks are under way on a sale of the Saturn unit to dealers, GM said. The goal is to phase out Saturn in 2009, instead of 2011 as previously discussed. With Hummer and Saab already targeted for disposal, Detroit-based GM’s remaining US brands will be Chevrolet, Buick, GMC and Cadillac.

“We allocate too many resources over too many things,” Henderson said at a briefing for reporters in Detroit. “I’m in favor of getting great results instead of being big.”

By 2010, the company will sell 34 nameplates in the US, down from 48 last year. US hourly labor costs will be slashed by 34 percent compared with 2008 levels, and the number of domestic manufacturing locations will fall to 31 from 47, according to Monday’s filing.

US market

The cuts are designed to ensure that GM can be profitable in a US market with sales of as few as 10 million autos, 13 percent lower than previously projected. The annual sales rate was 9.9 million in March, after GM said February 17 its break-even target was 11.5 million to 12 million.

Losses have totaled $82 billion since 2004, GM’s last profitable year, pushing the company to the brink of collapse before then-President George W. Bush approved the first installment of emergency US loans in December.

The US Treasury said April 24 that it provided an additional $2 billion in aid to keep GM operating, pushing the automaker’s total to $15.4 billion. The new money is part of $5 billion in extra loans disclosed last week in a report by the special inspector general for the Troubled Asset Relief Program.

GM said Monday it plans to seek $27 billion in total funds from the government. GM is asking the US Treasury to accept about $10 billion worth of the debt as equity in the new company, according to the filing.

GM’s 8.375 percent bonds due in July 2033 rose 0.25 cent to 9 cents on the dollar, yielding 91 percent, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority.

Health-care fund

GM is also attempting to restructure the automaker’s $20 billion obligation to a union-run retiree health-care fund. If a deal can be reached with the United Auto Workers, half that obligation, or $10 billion in cash, “will be extinguished in exchanged for GM common stock,” according to the filing.

The other $10 billion in cash would be paid in installments over a timetable that is still being negotiated between GM and the union.

GM said it hasn’t reached an agreement with the UAW and the Treasury on the proposed amendments to the health-care fund. Those modifications are a condition of the debt exchange offers, GM said in its filing.

Source: Bloomberg