Canadians may own 10% of new GM

Filings paint portrait of a once mighty auto giant majority controlled by North America's taxpayers

May 29, 2009

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THE TORONTO STAR

Canadians will soon own more than 10 per cent of the "new" General Motors under a massive restructuring of the ailing auto giant.

Although government leaders won't confirm the taxpayer stake because of continuing talks, Ottawa and the province will likely commit about $10 billion in loans to keep the company alive and receive preferred and common stock in return.

The money is part of a Canadian-U.S. aid package for GM Corp. and its subsidiary here that will leave governments in both countries with almost three-quarters of the company.

In filings with securities regulators yesterday, the U.S. Treasury, which has already invested $19.4 billion (U.S.) in GM, said it will pump in another $30 billion and receive 72.5 per cent of the stock. However, it will allocate part of that stake to the federal and Ontario governments, the filings show.

Using Canada's portion of GM's North American auto production as a benchmark, that would leave taxpayers with an equity stake of between about 11 per cent and 12.5 per cent.

Washington would hold the remaining 60 to 61.5 per cent; a United Auto Workers health-care trust 17.5 per cent – and bondholders about 10 per cent, according to the filings.

The federal and Ontario governments had indicated they would contribute a proportionate amount in loans to reflect the 15 to 17 per cent of the company's production here.

GM's North American output here had hovered around 20 per cent, but the company recently closed a truck assembly plant in Oshawa and will shut a transmission factory in Windsor next year.

Last December, the federal and Ontario governments said they could become shareholders in GM and Chrysler, another reeling automaker, by receiving warrants that would give them the right to buy non-voting stock.

In GM's case, the governments would also get senior creditor status as security.

At that time, Prime Minister Stephen Harper acknowledged a planned contribution of $3 billion (Canadian) to GM of Canada and $1 billion to Chrysler Canada would likely increase as the two companies fought to recover from the worst slump in industry sales in more than a quarter of a century.

Harper and Ontario Premier Dalton McGuinty have stressed they don't want their governments to remain shareholders for a long time. However, they said the companies' deteriorating financial health left them no choice, because the fallout from a collapse of GM or Chrysler would push Canada into a much deeper recession.

Conditions worsened and GM's allocation climbed from $3 billion to a request for between $6 billion and $7 billion in February.

That amount has increased again in view of disclosures by the U.S. government about its growing aid package.

Earlier this month, the governments in Canada said they would jack up aid to Chrysler from the original allocation of $1 billion to $3.77 billion.

Chrysler gained temporary court protection from creditors in the U.S. and shut down its operations in both countries amid questions about whether it could pay suppliers.

Fiat SpA of Italy will hold a 20 per cent interest in Chrysler that could climb to 35 per cent – and would take over the company's so-called good assets.

The U.S. government will assume an 8 per cent equity stake, while Ottawa and the province will hold 2 per cent. The UAW union will own 55 per cent.

GM will also likely pursue court protection next week after it submits a restructuring plan to governments in both countries.

In addition to resolving creditor disputes, it will also allow GM to separate good assets from bad. The bad assets would be sold or closed.

"These discussions are still going on ... governments are still finalizing and working out the details," Ontario Finance Minister Dwight Duncan told reporters.

"There are too many moving parts."

Questions remain about whether GM will be able to continue production during bankruptcy protection, which could continue for 90 days.

A production stoppage would mean the layoff of tens of thousands more workers in the industry in both countries.

Visteon Corp., meanwhile, the top parts supplier and former subsidiary of Ford Motor Co., filed for bankruptcy protection in the U.S. early yesterday as it struggles with the big drop in auto demand.

Toronto Star