The drastic reinvention plan that General Motors Corp. unveiled Monday would leave the onetime world goliath a smaller, leaner company -- with its legendary Pontiac brand discontinued -- but puts the automaker on a collision course with bondholders that could still land it in Bankruptcy Court.
GM proposed a painful downsizing that would eliminate 21,000 workers, 2,600 dealers, $44 billion in debt and four brands -- while making the U.S. government majority owner of what was once the world's largest company.
Separately, employees at Chrysler are poised to become majority owners of that troubled company if they approve a deal struck Sunday between the United Auto Workers union and the carmaker.
Factory-level union leaders unanimously recommended Monday that the rank-and-file members approve a deal giving them a 55% stake. The U.S. government and Chrysler's secure lenders would together get 10%, and Italian automaker Fiat, which is negotiating a takeover of Chrysler, would eventually end up with a 35% stake.
At GM, the dramatic changes would allow the company to survive even the current woeful economic conditions, and to thrive when the market rebounds, analysts said.
First the automaker must pull off what it conceded would be a tough task: getting banks and other holders of $27 billion in company debt to exchange nearly all of it for GM shares -- and to do so under terms that are much worse than those offered to the U.S. Treasury and the UAW for some of the money owed to them.
The bondholders blasted the proposal, calling it "neither reasonable nor adequate." A committee representing some bondholders issued a statement saying the plan "amounts to using taxpayer money to show political favoritism of one creditor over another."
And GM still isn't done negotiating with the UAW, which is trying to preserve as much of its retirees' healthcare trust as possible.
But investors liked the plan, sending GM stock up 21% on Monday to $2.04.
Pontiac workers who faced a shutdown of the brand by the end of 2010 were nervous. At a plant in Fremont, Calif., that produces the Pontiac Vibe and Toyota Matrix through a joint venture between GM and Toyota Motor Corp., employees were uncertain about their futures.
"We always assume there will be something coming down the line," said David Busbee, 45, who has worked there for more than two decades, most recently in quality assurance. "Car models change. But it's maybe the end. We've all started to question the options we have."
Under a deadline set by the Obama administration, GM has a little over a month to close the deal with the bondholders and get White House approval for its restructuring plan or face an even more dramatic step: filing for bankruptcy protection. GM plans to ask federal officials for an additional $11.6 billion in loans on top of the $15.4 billion it has already received.
"The objective here is not to survive -- the objective is to develop an operating plan that helps us win," GM Chief Executive Fritz Henderson told reporters Monday. "If this cannot be accomplished out of court, we will go in court and accomplish a restructuring through bankruptcy if necessary."
Bondholders will have to weigh GM's offer of a 10% equity stake in the company against the possibility that they could get much less, or even nothing, in Bankruptcy Court, said Shelly Lombard, a debt analyst at research firm Gimme Credit. GM warned bondholders of that possibility in a letter Monday, and Henderson said GM executives believed that would be the only option if the debt-reduction plan fails.
"This looks like a lousy deal," Lombard said. "But I'm not sure the bondholders have the leverage to get a much better deal."
Monday's restructuring plan, the third unveiled since November, accelerated and expanded the version proposed by GM in February. The Obama administration auto task force rejected it last month, forced out former GM CEO Rick Wagoner and gave GM until June 1 to make more drastic changes or face bankruptcy.
Key elements of the new plan include:
* Eliminating 21,000 salaried and hourly jobs by the end of next year, 7,000 more than previously announced, and closing 13 plants.
* Cutting its U.S. dealer ranks 42%, to 3,600. GM said it would soon begin contacting the 2,600 dealers it had selected for elimination -- 500 more than contemplated in the previous restructuring plan -- and make them offers to surrender their GM franchises. That could cost billions of dollars.
* Shutting down Pontiac and ceasing production of three brands earlier than planned. GM will eliminate Hummer, Saturn and Saab if it doesn't find buyers for them by the end of the year. It will then focus on four brands: Chevrolet, Cadillac, GMC and Buick.
* Selling only 34 car models by 2010, down from 48 in 2007.
* Reducing the break-even point. The cuts are designed to allow GM to break even in a market with industry sales in the U.S. as low as 10 million vehicles a year. Last year, 13.2 million cars and light trucks were sold in the U.S., but sales were on a 9.8-million-unit annual pace through the first quarter of this year.
* Giving the government at least 50% of GM's common stock in exchange for $10 billion of the money the government has lent the company. The union would hold as much as 39%, and bondholders would get a 10% share. Current shareholders would effectively be wiped out.
"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," the task force said in a written statement.
White House Press Secretary Robert Gibbs reiterated the administration's position that "it is not our desire to either own or run one of the auto companies."
Chrysler, which has borrowed $4 billion from the government, has been given until Thursday to reduce its debt, cut union costs and forge a merger with Fiat. It made progress Monday toward meeting the deadline when German automaker Daimler agreed to relinquish its 19.9% stake in Chrysler, simplifying negotiations with Fiat, and pay as much as $600 million into Chrysler's pension fund.
On Sunday, Chrysler reached a deal with the UAW and the Canadian Auto Workers. The Canadian union has ratified the deal, which is expected to save the company nearly $200 million a year in labor costs. UAW members are expected to vote on the deal by Wednesday, a day ahead of the government's deadline for Chrysler to restructure. Union President Ron Gettelfinger said it would help keep the automaker out of bankruptcy.
GM is also negotiating with those unions, but said it had not yet reached an agreement on new concessions with either and would continue talks.
One sticking point has been reducing by as much as half GM's $20 billion in cash obligations to a retiree healthcare trust.
The automaker said it would accomplish that goal with a debt-for-equity swap, and would also offer the same exchange to the Treasury in exchange for up to $10 billion in debt and to private holders of $27 billion in GM bonds.
A tender offer extended by the company to bondholders would trade 225 shares for every $1,000 in debt. To avoid a bankruptcy filing, Henderson said, at least 90%, or $24 billion, of that debt would have to be voluntarily swapped.
"The offer is unlikely to be accepted," said Brian Johnson of Barclays Capital. Calling the latest GM plan "brinkmanship," he calculated that the tender would be worth zero to 5 cents per dollar of outstanding debt to bondholders, compared with 50 to 60 cents per dollar to the union.
Aaron Bragman, an industry analyst at IHS Global Insight, said he expected GM and the bondholders to continue negotiating as the June 1 deadline approaches.
"It's going to come down to what they think can get in bankruptcy versus outside bankruptcy," he said of the bondholders.
Ellen Lee in Fremont, Calif., and the Associated Press contributed to this report.