WORLD> Industrial Shake-up
GM to cut 21,000 US factory jobs, shed Pontiac
(Agencies)
Updated: 2009-04-28 11:51

Kip Penniman Jr., an analyst with KDP Investment Advisors Inc., predicted the exchange offer would fail and GM will file for bankruptcy. The value of all of GM's outstanding stock is about $1.27 billion, so if bondholders get about 10 percent of the equity, the offer is only worth about 5 cents per dollar of GM bonds, he said.

GM to cut 21,000 US factory jobs, shed Pontiac
 A photograph of a 1959 Pontiac Bonneville convertible is shown in this handout image from the GM Media Archive, released April 25, 2009. [Agencies]

GM's plan depends on 90 percent of bondholders exchanging their debt, and "there is no chance that GM will get anywhere near that participation rate," Penniman said in a research note.

Related readings:
 GM to cut 21,000 US factory jobs, shed Pontiac GM unveils plans to axe plants, jobs, dealerships
 GM to cut 21,000 US factory jobs, shed Pontiac Fiat in frame as GM ready to sell Opel
GM to cut 21,000 US factory jobs, shed Pontiac GM to shut most US plants up to 9 weeks
 GM to cut 21,000 US factory jobs, shed Pontiac US to give Chrysler, GM new aid
Henderson said if the debt exchange isn't successful, he would expect GM to file for bankruptcy protection somewhere around June 1, but such a filing would be unlikely very long before the deadline. Bondholders have until May 26 to accept the exchange offer.

Henderson said the company still prefers to restructure outside of court, but he acknowledged that the prospect of bankruptcy is more likely now that it was a few weeks ago.

"The task at hand in terms of what we need to get done is formidable," Henderson said. "But it can be done."

GM said it would speed up six additional factory closings that were announced in February, although it did not identify the locations. Additional salaried jobs cuts also are coming, beyond the 3,400 in the US completed last week.

Henderson said there would be three more factory closures in 2010 beyond the six that were previously planned. He expects to identify them by publicly in May. They will include assembly, engine and transmission and parts-stamping factories, he said.

Including previously announced plant closures, the restructuring will leave GM with 34 factories at the end of next year, 13 fewer than the 47 it had at the end of 2008.

Besides the US job cuts, General Motors Canada said it plans to slash its hourly work force to from 10,300 currently to 4,400 by 2014 years.

The company also said it plans to reduce its dealership ranks by 42 percent from 2008 to 2010, cutting them from 6,246 to 3,605. When asked how GM would accomplish that, Henderson would say only that the company would be making offers to the dealers in the coming weeks.

Mark LaNeve, vice president of North American sales and marketing, said a big chunk of the dealership reduction - about 450 - would come with the elimination or sale of Saturn, Hummer and Saab. GM would then look to end relationships with dealers that do only a small volume of business with GM, and then move on to other dealers, he said.

"We've got a cadence plan to it," he said. "I don't want to get rid of any dealers," LaNeve said, but acknowledged that that GM has had more dealers than it needs for quite some time.

Henderson said the new plan lowers GM's break-even point in North America to an annual US sales volume of 10 million vehicles. That's slightly more than the current sales rate, but most economists expect an uptick in the second half of the year.

"This lower break-even point better positions GM to generate positive cash flow and earn an adequate return on capital over the course of a normal business cycle, a requirement set forth by the US Treasury," GM said in a statement.