WASHINGTON AND LOS ANGELES — 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.