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Monday, September 22, 2014
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Published: Thursday, 4/30/2009

GM's new reality

General Motors has now revealed its last hope for avoiding bankruptcy, and what most commentators failed to notice is how radical it is.

The most startling thing was not that the corporation, once the world's largest, proposes to eliminate more than 20,000 more jobs and permanently close 16 factories. Nor is it that General Motors is pulling the plug on Pontiac, one of the oldest and best-known brands in automotive history.

What is truly most amazing is that General Motors proposes to turn over ownership of at least half the company to the federal government, in return for another $11.6 billion in loans in addition to the $15.4 billion Uncle Sam has given General Motors since Christmas.

Another 39 percent of the company would be owned by the United Auto Workers' union. The shadowy bondholders, those who now hold much of the company's massive debt, would get a 10 percent stake.

Left behind would be those who hold GM stock, which in the past year has lost 95 percent of its value; they would be left with just 1 percent of the company.

A year ago, nobody could have envisioned this turn of events, even as science fiction.

This leaves two big questions: Will this work? And second, should it?

For the plan to have a chance, it has to be acceptable to both the Obama Administration, which must decide by the end of May whether to keep the loans coming, and to the stakeholders. The guess here is the plan will meet with government approval; it is hard to imagine that the administration wasn't at least tacitly involved in the planning.

The UAW would be seriously misguided not to accept its proposed stake in the deal. That leaves the bondholders, whose initial reaction was far more negative; they are being asked to take a little cash and a pile of GM stock in place of what they are owed.

They need to ask themselves, however, what they would have to gain by not accepting this deal. If General Motors makes it back, they conceivably could recoup their investment.

It is hard to see why a bankruptcy filing, much less eventual liquidation of General Motor's assets, would be better for them, the company, or this country.

The encouraging thing is that, after years of burrowing its corporate head in the sand, GM seems to have realized that the world has changed. It would be sadly ironic if those who have been along for what has been a very bumpy ride - the union, taxpayers, and bondholders - chose this moment to steer the company into the ditch.



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