White House Plots GM Bankruptcy, Unsure When Taxpayers Will Recoup $50 Billion Investment

The Obama White House auto task force said Sunday the government will pump another $30 billion into a restructured General Motors that has 50 percent fewer liabilities and far fewer product lines.

Senior administration officials, who declined to speak for attribution, said the U.S. government will be a "passive" investor but will oversee operations at the new GM because "the taxpayer will want us to."

Not one of Obama's senior economic advisers could or would venture a guess as to when taxpayers would see a return on their massive and White House-engineered investment.

"We're not here to predict," a senior official said when asked about any timeline for taxpayer payback.

The White House was more certain about GM's future access to the taxpayer till -- it's over.

"One never says never, but this is it in terms of support for GM," a senior official said.

The outlines of the restructured GM are as follows:

* Cut GM's production break-even point from 16 million annual unit sales to 10 million. This will require the shuttering of numerous factories and the closure of several vehicle lines. But the White House declined to name the factories or GM divisions destined for the bankruptcy chopping block. It said GM will separately announce the closure of 11 factories and the idling of 3 other facilities. The White House predicts this new unit-production goal can, over time, return the company to profitability.

* UAW concessions include allowing GM to shed its $20 billion obligation to its pensions and health care fund, otherwise known as the VEBA. The White House said the UAW concessions were more substantial than those sought by the Bush administration when it was considering throwing the company a taxpayer lifeline.

* Bond holders representing at least 54 percent of the company's unsecured bonds have agreed to trade their portion of GM's $27.1 billion in unsecured debt for a pro-rated share of 10 percent of the equity in the so-called new GM. In addition, the bond holders will receive warrants for an additional 15 percent of the company. The bankruptcy process, which the White House said should take between 60 and 90 days, will enforce this distribution as well as adjudicate proceeds for bond holders who do not participate in the White House deal.

* The reorganized GM will buy most of the old GM assets needed to carry out its business plan. The purchase will happen in the chapter 11 process. In exchange, the U.S. government will relinquish a majority of its loans to GM.

* The new GM will create an independent trust (VEBA) that will finance health care benefits for GM’s retirees. The VEBA will be funded by a note of $2.5 billion payable in three installments that end in 2017. There will be an additional $6.5 billion purchase that will create 9% perpetual preferred stock. The VEBA will also receive 17.5% of the equity of New GM and warrants to purchase an additional 2.5% of the company. The VEBA will be able to chose one independent director for the new board. It will have no right to vote its shares or other exercise other governance rights.

* The GM-qualified pensions for current hourly and salaried employees will be transferred to the New GM.

* Treasury will provide $30.1 billion of debtor-in-possession financing to support GM through an accelerated chapter 11 process. Officials anticipate no additional funding for GM. "There is no plan of any kind for future support beyond this point," an official said. "One never says never but this is it in terms of support for GM."

The government will receive $8.8 billion in debt and preferred stock and 60% of the company's equity. Treasury will appoint all new board of directors members not appointed by the VEBA and the Canadian government.

* Governments in Canada and Ontario will lend $9.5 billion to GM and New GM. The Canadian and Ontario governments will receive approximately $1.7 billion in debt and preferred stock, and approximately 12% of the equity of the new GM. The Canadian government will select one director to the new GM board.

* The new GM will, as part of the government-supervised restructuring, build a new small car in an idled UAW factory. The goal is to increase the share of U.S. production for U.S. sale from 66 percent currently to 70 percent.

These are the White House "principles" for managing the ownership stake:

* The government will sell equity stakes as "soon as practicable." The goal is a profitable company without government involvement.

* The government will reserve the right to set up-front conditions to protect taxpayers, promote financial stability and encourage growth.

* The government will manage its ownership stake in a hands-off, commercial manner. It will not interfere with day-to-day company operations. No government employees will serve on the boards or be employed by these companies.

* The government will only vote on core governance issues, including the selection of a company's board of directors and major corporate events or transactions.

White House policy on new GM warranties:

* GM will honor consumer warranties. Last week, Treasury provided $361 million in financing to the Warranty Support Program as a backstop so GM can pay warranties on vehicles sold during the restructuring.

Employee issues during bankruptcy:

* Employees will receive ordinary salary, wages and benefits. The pension plan and VEBA will be transferred to New GM.

* GM will seek authority at its "first day" bankruptcy hearing to continue to pay suppliers. In addition, the U.S. Treasury's Supplier Support Program will continue to operate, and GM suppliers benefiting from the program will continue to receive that support.

* GM will seek authority at its "first day" bankruptcy hearing to honor dealer warranties and maintain sales incentives for dealers the new GM intends to retain. Terminated dealerships will be given an 18-month wind-down window to close their operations.