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GM Bankruptcy Would Mark Milestone in Industrial America

After the rejection of General Motors' offer to trade bond debt for company stock, analysts consider what a GM bankruptcy says about the company and the auto industry generally.

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  • JEFFREY BROWN:

    And we begin with the latest developments. That comes from Micheline Maynard, a senior business writer for the New York Times and author of two books about G.M. and the auto industry, including "The End of Detroit."

    Well, developments on several fronts in the last 24 hours. One is that G.M.'s bondholders rejected a plan put forward by the company. Tell us about that first.

  • MICHELINE MAYNARD, The New York Times:

    That's right. General Motors, about a month ago, proposed that bondholders exchange $27 billion in debt and, in return, get about a 10 percent stake in the company. That wasn't at all to their liking, because they were looking at a proposal at the time that would have given the United Auto Workers union about 39 percent of the company in return for about $20 billion in debt.

    And so the bondholders had a month to vote. General Motors needed 90 percent of them to go along with the plan. And they said today that they got substantially less than that. And the speculation is that they may have gotten even less than about 10 percent of bondholders to go along.

  • JEFFREY BROWN:

    And who are the bondholders now? We hear a lot about them. We talk about them. Who do we mean?

  • MICHELINE MAYNARD:

    When you hear the term "bondholders," you think about, you know, big, wealthy banks and wealthy investors, but, in fact, there are a lot of individuals who purchased G.M. bonds over the years. You know, you have to remember that G.M. was not only the largest carmaker; it was the largest company in the United States. And it seemed to be a rock-solid investment.

    So you have individuals who bought bonds maybe for their children's college education or for their retirement, and they seem to be a very good investment. In fact, the bonds are still trading, and their collective value is more than General Motors common stock.

  • JEFFREY BROWN:

    Now, another development involves the UAW, which is voting on new concessions, and all of this could leave the U.S. government with a 70 percent share of the company?

  • MICHELINE MAYNARD:

    That's right. The deal that the UAW is voting on is similar to concessions that were granted at Ford Motor Company and at Chrysler. And, essentially, it wipes out some of the benefits that UAW members have had for years.

    For example, they've always gotten a cost-of-living adjustment on top of their hourly wage; that goes away. Some retiree benefits go away. There are a lot of work rules that go away, time off, tuition assistance that goes away. And they're voting on that proposal today.

    Now, as part of that proposal, there's a big health care fund that will take care of retiree medical benefits. General Motors owes that fund about $20 billion. And as part of this deal, the UAW would get about 20 percent of General Motors once it goes through its restructuring, and they're also get a note that's worth — a note and warrants on stock and preferred stock that's worth another $10 billion.

    So it's sort of a carrot and a stick approach. The stick is pretty painful, but the carrot is at least a piece of General Motors once it comes out of bankruptcy.

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