Automaker also will ask feds to stock for debt

General Motors President and CEO Fritz Henderson announces the company will build around four core brands in its viability plan in Detroit, on Monday. GM says it will cut 21,000 U.S. factory jobs by next year and phase out its storied Pontiac brand as part of a major restructuring effort needed to get more government aid. The struggling automaker also says it will offer 225 shares of common stock for every $1,000 in notes held by bondholders as part of debt-for-equity swap.

DETROIT – General Motors Corp. could be majority owned by the federal government and the United Auto Workers under a massive restructuring plan laid out Monday that will cut 21,000 U.S. factory jobs by next year and phase out the storied Pontiac brand.

The plan, which includes an offer to swap roughly $27 billion in bond debt for GM stock, would leave current shareholders holding just 1 percent of the century-old company, which is fighting for its life in the worst auto sales climate in 27 years.

GM is living on $15.4 billion in government loans and said Monday in a filing with the U.S. Securities and Exchange Commission that it envisions receiving an additional $11.6 billion. But if GM’s restructuring plan can’t satisfy the government by June 1, the struggling company could go into bankruptcy protection.

GM said that it will ask the government to take more than 50 percent of its common stock in exchange for canceling half the government loans to the company as of June 1. The swap would cancel about $10 billion in government debt.

In addition, GM is offering the UAW stock for at least 50 percent of the $20 billion the company must pay into a union run trust that will take over retiree health care expenses starting next year.

If both are successful, the government and UAW health care trust would own 89 percent of GM stock, with the government holding more than a 50 percent stake, CEO Fritz Henderson said in a news conference at GM’s Detroit headquarters.

President Barack Obama’s administration said in a statement that the bond exchange filing is an important step in GM’s restructuring but the administration has not made a final decision about taking stock for part of its loans.

“The interim plan that GM laid out in this filing reflects the work GM has done since March 30 to chart a new path to financial viability. We will continue to work with GM’s management as it refines and finalizes this plan and with all of GM’s stakeholders to help GM restructure consistent with the president’s commitment to a strong, vibrant American auto industry,” the statement said.

Henderson said that although the government would own a majority of GM’s outstanding common shares, the Treasury “hasn’t demonstrated interest in running the company,” but would have someone on the board looking out for the taxpayers’ interest. The task force has directed current board chairman Kent Kresa to replace several board members.

“The shareholders, the VEBA (health care trust) and the government would want to have a someone on the board of directors,” he said.

Deals with the UAW and the Treasury have yet to be finalized, he said.

The struggling automaker said it will offer 225 shares of common stock for every $1,000 in notes held by bondholders as part of a debt-for-equity swap. Henderson said the objective is to reduce GM’s $27 billion of outstanding public debt by about $24 billion. The company estimates that after the exchange, bondholders would own 10 percent of the company.

That would leave current common stockholders with only 1 percent, GM said. Still, GM shares rose 47 cents, or 27.8 percent, to $2.16 in midday trading.

The plans, if successful, would reduce GM’s debt by $44 billion from the present figure of about $62.4 billion.

“We would be substantially less-levered as a company,” said Henderson, who answered questions while sitting in a chair on a stage with a gray curtain behind him. At times, he drank from a glass of water on a small table nearby.

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 U.S. 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 U.S. 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 U.S. 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 U.S. Treasury,” GM said in a statement.

The company said it would phase out its storied Pontiac brand no later than next year, and the futures of Hummer, Saturn and Saab will be resolved by the end of this year by either selling them or phasing them out.

For Pontiac, the decision means the death of a brand known for its muscle cars including the Trans Am made famous in movies and the GTO, the subject of a nostalgic song by Ronny and the Daytonas.

Henderson said in a news conference that the company was spread too thin to make Pontiac work.

“We didn’t think we had the resources to get this done from a product perspective,” or marketing, he said.

He said the decision was very tough for many at GM because of the 83-year-old brand’s heritage.

Henderson said talks continue with potential parties to buy a stake in Opel and are expected to continue through the end of May. He said the company would continue to have a presence in Europe as a stakeholder. He said Chevrolet is one of the fast-growing car segments in Eastern Europe and Russia.

One of the conditions to get aid from Germany is to have a private investor take a stake in Opel, he said.

AP Auto Writer Bree J. Fowler in New York, AP Business Writer Stephen Manning in Washington, D.C., and Associated Press Writer Charmaine Noronha in Toronto contributed to this report.

By Tom Krisher, Kimberly S. Johnson

DEARBORN, Mich. – Ford Motor Co. reported a first-quarter loss of $1.4 billion Friday and said it used less of its cash, emphasizing that it doesn’t expect to seek any of the government assistance that is keeping the rest of the Detroit Three alive.

The nation’s second-largest automaker said it spent $3.7 billion more than it took in during the first three months of the year, far less than the $7.2 billion it spent in the fourth quarter of 2008.

Ford shares climbed 76 cents, or 17 percent, to $5.25 in morning trading.

Chief Financial Officer Lewis Booth said the company is confident that it will slow the drain on its cash even further this year, and he said Ford will make it through 2009 without needing government aid. He would not speculate, however, about 2010.

“This is a very, very difficult environment,” Booth said. “We’re comfortable we’ll get through this year.”

While General Motors Corp. and Chrysler LLC have accepted $17.4 billion in federal aid and are racing toward deadlines to make deep cuts or file for bankruptcy, Ford was the first U.S. automaker to modify its contract with the United Auto Workers union and strike a deal to make up to 50 percent of payments to a union-run health care trust in stock instead of cash. The company also completed tender offers to reduce its debt by more than one-third.

The company said the moves would result in annual savings of $1 billion.

Ford drew the last $10.1 billion from its revolving line of credit during the quarter and said it had $21.3 billion in cash as of March 31. That’s down from $28.7 billion in the same period last year.

Ford’s first-quarter loss compares with a $70 million profit a year earlier. On a per share basis, Ford lost 60 cents, compared with earnings of 3 cents a share for the comparable quarter a year ago.

Revenue was $24.8 billion, down nearly 37 percent from $39.2 billion in the same quarter of last year, as Ford’s U.S. sales declined 43 percent.

On a pretax basis excluding special items such as a gain from its March debt exchange, Ford lost 75 cents a share, beating analysts estimates. Eleven analysts polled Thomson Reuters expected a $1.23 per share loss on revenue of $22 billion.

Booth called the first-quarter performance “solid” compared with Ford’s fourth-quarter loss of $5.9 billion, which led to a $14.6 billion loss for 2008, the worst annual loss in the company’s 106-year history.

“I think the important comparison for us is, ‘are we improving versus the fourth quarter?’ Because the fourth quarter, things were really dreadful,” Booth said.

He said cost cuts and better pricing for its vehicles helped the company narrowed its losses, and he expects continued improvement for the remainder of the year. Booth said Ford cut structural costs by $1.9 billion and predicted Ford would likely exceed its $4 billion cost-cutting goal for the year.

Ford said it remains on track to break even or post a profit on a pre-tax basis in 2011.

One day after GM said it would temporarily close 13 North American plants for up to 11 weeks this summer to slash production, Ford said it has increased its second-quarter production forecast to 902,000 units, up 19.5 percent from the first quarter. North American production is expected to rise 25 percent to 435,000 vehicles.

The increase is due to seasonal adjustments and because of first-quarter production cuts to reduce dealer inventory. Ford shut down 10 North American assembly plants for an extra week in January to deal with the auto sales slump.

Special items improved earnings by $362 million. Ford’s $1.1 billion gain on its debt exchange was offset by a $664 million impairment charge due to a reduction in the book value of its Swedish Volvo unit. Ford classified Volvo as “held for sale,” meaning that it’s likely the unit will be sold in the next 12 months.

By Tom Krisher, Kimberly S. Johnson

Amy Vollmar, 43, from Bowling Green, Ohio, a worker for Chrysler for the past 24 years, listens during a Chrysler rally at the Jeep plant in Toledo, Ohio on Wednesday.

DETROIT – Worried about their jobs and warned that the cost of failure could be a depression, hundreds of leaders of the United Auto Workers voted overwhelmingly Wednesday to make concessions to the struggling Detroit Three, including all but ending a much-derided program that let laid-off workers collect up to 95 percent of their salaries.

“Everybody has to give a little bit,” said Rich Bennett, an official for Local 122 in Twinsburg, Ohio, representing Chrysler workers. “We’ve made concessions. We really feel we’re doing our part.”

Union leaders also agreed to let the cash-starved automakers delay billions of dollars in payments to a union-administered trust set to take over health care for blue-collar retirees starting in 2010.

In addition, they decided to let the Detroit leadership begin renegotiating elements of landmark contracts signed with the automakers last year, a move that could lead to wage concessions.

The vote came on the eve of congressional hearings on as much as $34 billion in loans that General Motors and Chrysler say are critical to their survival. Ford has said it may be able to hang on through 2009 without additional credit.

Democratic congressional leaders say they want to act to prevent one or more of the automakers from collapsing, but they have made no commitments to approve an unpopular bailout at a time of economic peril.

Senate Majority Leader Harry Reid said a Democratic plan to tap the Wall Street rescue fund to save U.S. automakers does not have the votes to pass.

UAW President Ron Gettelfinger said the union must help persuade Congress to offer the loans or risk destroying what he said is the country’s economic spine.

“Let’s look at the backbone and the millions of jobs lost if we lost this industry,” he said.

Earlier in the day, Chrysler Vice Chairman Jim Press went a step further, warning of a depression if even one automaker runs out of cash.

“We’re on the brink with the U.S. auto manufacturing industry,” Press told The Associated Press in an interview. “If we have a catastrophic failure of one of these car companies, in this tender environment for the economy, it’s a huge blow. It could trigger a depression.”

Both Chrysler LLC and General Motors Corp. are so perilously low on cash that the companies may not be able to pay all their bills by the end of the year. GM wants a total of $18 billion in loans. Chrysler is seeking $7 billion, and both manufacturers say they need cash this month.

Ford Motor Co., which borrowed billions before credit markets tightened, says it can survive through 2009 and may not need to tap the $9 billion credit line it requested.

Sent home empty-handed last month, executives from all three companies knocked on doors on Capitol Hill and made television appearances Wednesday, hoping the detailed plans they submitted Tuesday would convince hostile lawmakers to help. CEOs from all three, plus Gettelfinger, will appear before Senate and House committees Thursday and Friday.

Fritz Henderson, GM’s president and chief operating officer, stressed on NBC’s “Today” show that bankruptcy isn’t a viable option.

Choosing bankruptcy, he said, would further erode consumer confidence in the automaker and “we want them to be confident in their ability to buy our cars and trucks.”

All three executives took hybrid cars from Detroit to Washington after enduring harsh criticism last month for using corporate jets for the trip.

The automakers’ plans were being scrutinized by legislators, the White House and the Treasury and Commerce departments.

“It sounds to me like the companies have given this a lot of thought and are willing to make some tough decisions,” White House press secretary Dana Perino said. “We just need a little more time to pore through the documents.”

President-elect Barack Obama said it appeared that the CEOs were returning to Congress with a “more serious set of plans” for how their companies are going to survive.

The plans painted the most dire portrait yet of the industry’s woes — including the prospect of shuttered factories and massive job losses if Congress does not act quickly.

The much-derided “jobs bank” that permits laid-off workers to receive most of their pay was created in the mid-1980s as a trade-off to the UAW for increased factory automation. But the system became a symbol for the union’s largess when workers were paid for years after their factories closed.

Gettelfinger said the union will suspend the bank, but he did not give specifics or a timetable.

“We’re going to sit down and work out the mechanics,” Gettelfinger said. “We’re a little unclear on some of the issues.”

Members of Congress criticized the automakers last month for paying laid-off workers, saying it’s one reason why their labor costs are higher than competitors. About 3,500 workers from all three companies are now in the jobs bank.

Until the 2007 contract, workers could stay in the jobs bank indefinitely, but the new pact imposes time limits. Workers in the bank must report to local union halls. Sometimes they do charity work, but other times they do nothing.

Gettelfinger stopped short of saying the union would reopen its contracts but said it would return to the bargaining table to change some terms. Modifications would have to be ratified by members.

Delaying the health care trust payments will help the companies survive their cash shortages, which they say were brought on by the severe economic downturn and the worst U.S. sales in more than a quarter century.

The delay will have to be approved by federal courts, which already have blessed the trusts’ formation.

Democratic House Speaker Nancy Pelosi has said she hopes Congress acts to help the automakers. Reid said he would advance a bill Monday in preparation for a possible auto bailout vote later in the week.

The automakers, humbled by criticism from their last visit, gave lengthy plans with minute details about how they plan to repay the government money.

Ford CEO Alan Mulally and GM CEO Rick Wagoner both said they would work for $1 a year if their firms took any government loan money. Chrysler chief Robert Nardelli already works for $1 a year.

Ford offered to cancel management bonuses and salaried employees’ merit raises next year, and GM said it would slash top executives’ pay. Ford and GM both said they would sell their corporate aircraft.

Nevertheless, Sen. Arlen Specter, a Pennsylvania Republican, said the mood in Congress “is not supportive” of the automakers, although he called the consequences of just one of them failing “cataclysmic.”

Associated Press writers Ken Thomas, Julie Hirschfeld Davis and Jennifer Loven in Washington, and AP Business Writer Deborah Yao in Philadelphia contributed to this report.

By Tom Krisher, Kimberly S. Johnson

DETROIT – The United Auto Workers said Wednesday it is willing to change its contracts with U.S. automakers and accept delays payments of billions of dollars to a union-run health care trust to do its part to help the struggling companies secure $34 billion in government loans.

United Auto Workers President Ron Gettelfinger said the union will suspend the jobs bank, in which laid-off workers are paid up to 95 percent of their salaries while not working, but he did not give specifics or a timetable of when the program will end.

“We’re going to sit down and work out the mechanics,” Gettelfinger said at a news conference after meeting with local union officials. “We’re a little unclear on some of the issues.”

Members of Congress criticized the automakers last month for paying workers who are not on the job. About 3,500 auto workers across the three companies are currently in jobs bank programs.

One local union member who was in the meeting said the changes to the jobs bank would nearly eliminate the program. The member asked not to be identified because the details had not been made public.

Gettelfinger stopped short of saying the union would reopen contract talks with General Motors Corp., Chrysler LLC and Ford Motor Co. but said it would be willing to return to the bargaining table to change some terms.

Talks with GM will begin immediately, but additional bargaining officials must be elected for Ford and Chrysler, Gettelfinger said, and any modifications would still have to be ratified by local union members.

He also said the union will run a television ad in Maine, Kentucky, Indiana and Minnesota to put the faces of union workers on the controversy over the loans, and explain how the auto industry differs from the banking industry. The ads presumably are designed to pressure Congressional opponents of the loans.

“There’s a perception problem,” Gettelfinger said, stressing that the automakers’ woes have painted a negative view of the union. “Yes, we have lost some clout.”

Delaying the health care trust payments will help the companies survive their cash shortages, which they say were brought on by the severe economic downturn and the worst U.S. sales climate in more than a quarter century.

GM had been scheduled to pay more than $7.5 billion early next year to the union-administered fund which will take over retiree health care payments on Jan. 1, 2010. Ford owes $6.3 billion to its trust fund at the end of this year. Chrysler figures were unavailable.

The delay will have to be approved by federal courts, which already have blessed the trusts’ formation.

All three companies agreed to fund the trusts, called voluntary employee beneficiary associations or VEBAs, as part of the landmark 2007 contract reached with the UAW. By doing so they move billions in liabilities off their books.

When they go into effect, the trusts will pay health care bills for about 800,000 UAW retirees, spouses and dependents at the three companies. GM expects to save about $3 billion a year when the expenses are moved, while Ford says it will save $1 billion.

The CEOs of all three automakers are heading to Washington for more hearings Thursday and Friday on their loan requests after an abysmal showing before lawmakers last month. Gettelfinger will also attend.

Congressional leaders demanded business plans from all three that include a reduction in labor costs so Detroit is more competitive with foreign automakers with U.S. factories. The companies submitted their plans to Congress on Tuesday.

“I don’t think Congress is out for blood,” Gettelfinger said of the criticism the union received during his previous testimony last month. “There will be more pressure on us to do this. We’re going to step up and do it.”

That sentiment was echoed by several union representatives at the news conference.

“Everybody has to give a little bit,” said Rich Bennett, an official for Local 122 in Twinsburg, Ohio, representing Chrysler workers. “We’ve made concessions. We really feel we’re doing our part.”

But a retired GM worker said the union might be acting hastily out of fear that one of the automakers could shut down.

“Fear is a bad basis on which to make decisions,” said Frank Hammer, of Local 909 in Warren, Mich. “I think they’re making another mistake.”

Members at Local 122 are fearful of losing their jobs, said Bennett’s associate, Ken Walters. They’re seeing nearby plants shut down on regular basis.

General Holliefield, the UAW vice president representing Chrysler workers, said union members “historically do the right thing” in terms of making concessions during tough times, although the moves outlined Wednesday came to fruition following last month’s congressional thrashing.

“Washington didn’t ask us for concessions,” he said. “It wasn’t anything we were thinking about.”

The president of Chrysler said the UAW’s willingness to change the union’s contract is a good step.

Chrysler LLC President Tom LaSorda said during a Toledo rally for the industry on Wednesday that both sides need to go back and review the entire framework of the contract. He said if the union would surrender job security protections it would help the Detroit Three in the long run.

AP Auto Writer Tom Krisher contributed to this report.

Cars are loaded on a truck at the Volvo Torslanda factory in Gothenburg, Sweden. Ford Motor Co. is considering selling Volvo Car Corp. as the struggling U.S. automaker seeks to raise cash and weather a global automotive sales crisis.

DETROIT – Ford Motor Co. is considering selling Volvo Car Corp. as the beleaguered U.S. automaker seeks to raise cash and survive tight credit markets and a global automotive sales crisis.

Goteborg-based Volvo Cars, which Ford bought in 1999, has been struggling with declining demand and a strong euro which made its products more expensive. Volvo sales through October are down more than 28 percent compared with the same period in 2007, according to Autodata Corp.

Ford said Monday it expects its strategic review of the Swedish luxury automaker will take several months. The move is one of several actions Ford is taking to strengthen its balance sheet amid what it called “severe economic instability worldwide.”

“Given the unprecedented external challenges facing Ford and the entire industry, it is prudent for Ford to evaluate options for Volvo as we implement our One Ford plan,” said company President and Chief Executive Alan Mulally in written statement, referring to a plan to standardize the company globally.

Ford officials would not speculate on how a potential sale would affect the companies. Spinning off Volvo into a separate entity may be a possibility, since after a prior review, Ford started taking steps last year to allow Volvo to operate on a more independent basis.

“Our relationship with Volvo during this time remains unchanged, and we will continue to work together,” said Ford spokesman Mark Truby. “What’s most important is that we make the right decision.”

The Swedish government has said it has been in talks with Volvo and with General Motors Corp.’s Saab unit following reports that the U.S. parent companies were seeking aid for their Swedish carmakers.

Stefan Lofven, chairman of Swedish union IF Metall, said it is now extremely important that the Swedish government steps in and shows its support for Volvo in the sales process.

“Volvo is a strong brand. Now they have to find a serious owner who wants to and can develop Volvo in the future,” he said.

He said previous talks with the government about a worst-case scenario had considered temporary state ownership. He didn’t rule out that solution now.

Sweden’s deputy prime minister, Maud Olofsson, told local news agency TT that she was not surprised by Ford’s decision.

“I have seen for a long time what problems Ford has. In that situation it becomes natural for an American company to focus on the American market,” she said.

For the 2009 model year, Ford and Volvo led all brands with 16 vehicles on the Insurance Institute for Highway Safety’s list of the safest cars.

But despite its high safety ratings and strong reputation as a family vehicle brand, Volvo captured just 0.5 percent of the market through October, compared with 0.8 percent for the same period last year. That accounts for 3.7 percent of Ford’s total sales this year.

Even with tight credit worldwide, Ford could pull off a sale because Volvo would be attractive to automakers in emerging markets such as Tata Motors Ltd. of India, said Kevin Tynan, an analyst with New York-based Argus Research Corp.

“There’s probably enough money out there for either an emerging market automaker or somebody looking to get a brand with a little bit of cache to it,” Tynan said.

Tata in March purchased Jaguar and Land Rover from Ford for $1.7 billion. The Volvo brand would complement Tata’s two luxury brands, Tynan said.

Ford had considered the sale of Volvo, Land Rover and Jaguar for some time, but since the latter two weren’t as intertwined, their sale was less complicated. Depending on how it’s structured, a Volvo sale could end up hurting the Ford brand because the companies share safety technology and some Ford vehicles have Volvo underpinnings.

For example, Ford’s Taurus sedan, Taurus X crossover vehicle and Mercury Sable sedan are built on Volvo chassis, but Tynan said Ford can maintain manufacturing relationships long enough to transition the vehicles to new platforms.

“I think there’s enough mutual benefit going back and forth. There’s some benefit to whoever buys it to maintain the relationships,” Tynan said.

Ford, GM and Chrysler LLC will go before Congress this week to present a proposal for $25 billion in loans to keep them afloat as sales sag.

Ford shares rose 8 cents, or 3 percent, to $2.77, in Monday afternoon trading.

AP Auto Writer Dan Strumpf in New York and Associated Press Writer Malin Rising in the Stockhom bureau contributed to this story.

By Tom Krisher, Kimberly S. Johnson