Government May Need To Inject $50 Billion To Keep GM Alive

DETROIT — The U.S. government may need to inject $50 billion to keep General Motors alive and will likely take a stake of up to 70 percent in the crippled automaker. GM is expected to file Chapter 11 bankruptcy this week, after its bondholders overwhelmingly rejected an offer to exchange more than $27 million in unsecured debt for a modest stake in a restructured company.

On Wednesday morning, a company statement said simply that the exchange offer "will not be consummated" and that the board of directors "will be meeting to discuss GM's next steps."

Reports that the U.S. Treasury Department may be forced to pump far more money into GM to keep it afloat than earlier estimated were carried in several major newspapers, including the Wall Street Journal and the New York Times.

The Times said Treasury will provide "at least $50 billion to get the company through Chapter 11" and that "tens of billions beyond that amount may be required."

Treasury already has given GM nearly $20 billion in emergency loans, and the company had said it would need at least $7 billion more in post-bankruptcy financing. Last year, CEO Rick Wagoner told Congress that GM would need $20 billion in government loans. Wagoner was fired earlier this year.

Now, the projected total in government funds has ballooned to $50 billion or more, as Treasury envisions taking a much more prominent role in helping to restructure the company, including paying off more than $6 billion in secured bank loans from such institutions as Citigroup and J.P. Morgan Chase.

At the same time, the UAW said it had agreed to different terms to restructure the $20 billion that GM owes to the union's retiree health-care fund. GM earlier had offered the UAW a 39-percent stake in the company. Now, the union will accept a stake of 17.5 percent, with a warrant to take another 2.5 percent, which could raise its total stake to 20 percent.

In addition, the UAW will receive $6.5 billion in preferred stock in a restructured GM that could pay more than $500 million a year in dividends. The union also will get a seat on the GM board. And it has agreed not to strike GM before 2015.

GM's debts currently total nearly $90 billion. Treasury hopes to see GM emerge from bankruptcy with only $10 billion in outstanding debt, according to the Journal.

Inside Line says: The magnitude of the task of rebuilding a crumbling GM gets more daunting by the day. — Paul Lienert, Correspondent