GM (GM) distributed its turnaround plan to Congress. It was almost exactly what the market expected, but it fudges one key issue, which is what happens to the company’s finances if it loses a great deal more market share.

According to the firm, "GM is seeking a term bridge loan facility from the Federal government of $12 billion to cover operating requirements under a baseline forecast of 12 million U.S. industry vehicle sales for 2009."

"Once GM has completed the restructuring actions laid out in the plan, the company will be able to operate profitably at industry volumes between 12.5 and 13 million vehicles."

Most of the cost cutting and debt plans make sense:

"GM will accelerate its current efforts to reduce manufacturing and structural costs, building on significant progress made over the past several years."

"Under the plan, GM would significantly reduce the debt currently carried on its balance sheet. GM plans to engage current lenders, bond holders and its unions to negotiate the needed changes. GM’s plan would preserve the status of existing trade creditors and honor all outstanding warranty obligations to both dealers and consumers, in the U.S. and globally."

"The plan calls for shared sacrifice, including further reduction in the number of executives and total compensation paid to senior leadership. For example, the chairman and CEO will reduce his salary to $1 per year. The plan also requires further changes in existing labor agreements, including job security provisions, paid time-off, and post-retirement health-care obligations. The common stock dividend will remain suspended during the life of the loans."

"GM is seeking a term bridge loan facility from the Federal government of $12 billion to cover operating requirements under a baseline forecast of 12 million U.S. industry vehicle sales for 2009. In addition, GM is seeking a revolving credit facility of $6 billion that could be drawn should severe industry conditions continue, resulting in sales of 10.5 million total vehicles in 2009. This bridge loan is expected to be fully repaid by 2012 under the baseline industry assumptions. Also, warrants issued as part of the loans would allow taxpayers to benefit from growth in the company’s share price that might result from successful completion of the plan."

All good proposals, but if Toyota (TM) and Honda (HMC) keep sucking up customers, it won’t matter much.

Douglas A. McIntyre

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