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Hearing the new, more aggressive restructuring plan offered by General Motors reminds one of the scenario for mankind jokingly foreseen by Woody Allen. “One path leads to despair and utter hopelessness. The other, to total extinction. Let us hope we have the wisdom to choose correctly.” If – and it is a big if – the plan is accepted by debtholders, they will be taking a disproportionate hit compared with other principals. Only shareholders will fare worse – although unbelievably GM’s shares soared 20 per cent.

Under the plan, the union-run healthcare trust would exchange half the cash owed to it for shares, making it a substantial shareholder in a restructured enterprise. GM’s scheme also assumes another $11.6bn in cash from the Treasury. In addition to the $15.4bn of loans received, part of this would be retired in exchange for half the carmaker’s equity. These two steps would give unions and Treasury about 89 per cent of the company, even before private debtholders are taken into account. GM envisions some $27.2bn of that debt being converted to equity, giving holders another 10 per cent of the company.

Whatever happens, shareholders will be either wiped out or nearly so. Even a minimal recovery depends on debt-holders taking a bigger financial hit than the union. Assuming unsecured lenders accept, the restructuring plan would create a much less indebted but also far smaller GM with about 40,000, or a third fewer, US workers, and four core brands with a little over half today’s number of dealerships. This makes sense, as do shedding Pontiac and plans to axe Saturn and Hummer. Someone has to pay. More government cash may be needed to avoid Chapter 11. A bankruptcy restructuring may be messier and less pleasant for dealers, workers and suppliers – but more equitable.

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