DETROIT — General Motors bondholders felt they deserved something like a 58 per cent stake in the company in exchange for their billions of dollars in debt. What they were offered wasn’t even close.
As a result, the largest industrial bankruptcy in U.S. history is now all but certain. The bondholder rejection virtually ensures GM will file for Chapter 11 bankruptcy protection soon.
“They said no. That’s it. They tried. That’s why they’re going to have to file,” said John Pottow, a professor who specializes in bankruptcy.
The U.S. government, which has already extended nearly US$20 billion in loans to GM, ordered the company to come up with a plan that 90 per cent of its bondholders would agree to. But the government allowed it to offer only 10 per cent of the company’s stock. GM was forced to withdraw the offer Wednesday after it fell far short.
A person familiar with discussions between GM and the government told The Associated Press any bankruptcy filing would probably come around the government’s Monday deadline for GM to finish restructuring or enter court protection. The person asked not to be identified because the talks are private.
To avoid bankruptcy, the government had said GM must shed debt, cut labour costs and close plants.
GM bondholders are owed about $27 billion, the largest chunk of GM’s roughly $58 billion in debt. They were offered the 10 per cent stake to wipe out the debt, well short of the 58 per cent they wanted.
A GM bankruptcy would be the fourth-largest in U.S. history and the largest for an industrial company.
GM spokesman Tom Wilkinson said company’s board would meet later this week to decide its next move. He would not reveal what percentage of bondholders accepted the debt-for-equity offer, but GM said it was “substantially less” than needed.
Meanwhile, Germany pressed for an independent future for General Motors Corp.’s Europe-based Opel unit. The foreign minister said “the lights must not go out” on Opel even as the parent company heads for bankruptcy.
Opel’s supervisory board approved a plan to pool GM’s European assets — including plants, sales operations and patents but excluding Sweden’s Saab brand — for a new investor said Karin Kirchner, a spokeswoman for GM Europe.
GM would choose any new investor, but Germany would decide on whether a new owner would get further government assistance, and if so what kind.
Offering a glimmer of hope that GM might avoid bankruptcy, the United Auto Workers union agreed to take only a 20 per cent stake in GM, down from the original plan of 39 per cent.
Analysts speculated that the move would free up 19 per cent of GM’s shares to be used elsewhere, perhaps to sweeten the deal for bondholders. But that never happened, and now the U.S. government, which may have to commit billions more to GM’s court-supervised restructuring, stands to become a majority owner.
GM has already cut its Canadian workforce heavily, with the recent closure of a pickup truck plant in Oshawa eliminating 2,600 jobs. It now employs about 7,500 hourly workers in Canada, and plans a shutdown next year of a transmission plant in Windsor which employs 1,400.
The Canadian Auto Workers reached a deal last week with GM that freezes workers’ pension benefits until 2015 and slashes labour costs by $15 to $16 an hour through cuts to benefits.
GM also gave up its special status under Ontario law, which has allowed it to underfund its pension plan since the 1990s, and agreed to begin topping it up immediately.
Under the debt exchange plan announced by GM last month, bondholders were to get 225 shares of GM stock for every $1,000 they had in debt, a 10 per cent stake. Current stockholders would end up owning just 1 per cent of the company.
GM’s biggest bondholders, mostly big banks and other institutional investors, have opposed the swap from the start. Smaller bondholders — individual investors like retirees and families — have complained about the terms, too.
Associated Press Writers Philip Elliott in Washington and Geir Moulson in Berlin contributed to this report.
A brief history of GM Corp.
Some key events in General Motors’ history:
Sept. 16, 1908 — General Motors Company founded by William C. Durant, incorporating Buick Motor Co. Oldsmobile joins in November.
1915-16 — GM incorporated as General Motors Corp. Durant, after founding company that builds Chevrolets, regains control.
1920 — Durant resigns, later files personal bankruptcy and dies running bowling alleys.
1921 — GM accounts for 12 per cent of U.S. car market.
1937 — Violent sit-down strikes by GM hourly workers in Flint, Mich., shake company, lead to United Auto Workers representation.
1941 — GM market share grows to 41 per cent. Air conditioning first offered in Cadillacs.
1954 — GM’s U.S. market share reaches 54 per cent. Company makes 50 millionth car.
1959-60 — GM introduces Chevrolet Corvair. Car later attacked by Ralph Nader, who wrote book Unsafe at Any Speed that led to congressional auto safety hearings.
1979 — GM’s U.S. employment peaks at 618,365, making it the largest private employer in the country.
1980 — Roger B. Smith named chairman. GM loses more than $750 million.
1990 — Smith retires as chairman, succeeded by President Robert Stempel. GM launches Saturn, profits fall to $102 million as auto sales plummet.
1991 — Company loses industry record $4.45 billion. Stempel announces GM will close 21 plants over the next few years and eliminate 9,000 salaried and 15,000 hourly jobs in 1992.
1992 — Board strips some of Stempel’s authority. Stempel later resigns, saying rumours about his future compromised his ability to lead. Jack Smith named CEO.
2000 — President Rick Wagoner replaces Smith as CEO. GM cuts 10 per cent of white-collar employment.
2004 — Last model year for Oldsmobile.
2007 — GM loses $38.7 billion, including $39-billion third-quarter charge for unused tax credits. It’s the largest annual loss in auto industry history.
2008 — Gas prices hit $4 per gallon and truck sales plummet. By December, GM tells Congress it needs $18 billion to stay afloat. It receives $13.4 billion, racks up a $30.9 billion annual loss and burns through $19.2 billion.
2009 — On Feb. 17, GM says it will need a total of $30 billion.
March 30 — President Barack Obama — a day after firing CEO Rick Wagoner — gives the company until June 1 to make more aggressive cuts. Chief Operating Officer Fritz Henderson takes over as CEO.
April 27 — GM asks 90 per cent of its bondholders to participate in a debt-for-equity swap to rid the company of $24 billion
May 15 — GM says it will end contracts with about 1,100 dealers.
May 27 — GM says debt exchange offer has failed. Bankruptcy appears likely, as GM struggles to get all parties to agree to new, leaner terms before June 1.
Sources: Associated Press archives, Hoover’s, General Motors Corp.