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US may own 70% stake in GM

Source: PTI
May 27, 2009 19:30 IST
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The United States government may own 70 per cent stake in the restructured General Motors, the ailing auto maker which is battling to avert a possible bankruptcy.

"The latest plan for the troubled auto maker, which is expected to file for bankruptcy by Monday, calls for the Treasury Department to receive about 70 per cent of a restructured GM," The New York Times has reported. Quoting people with direct knowledge of the situation, the report said the government would provide the auto maker at least $50 billion to get the company through Chapter 11.

The total amount includes more than $20 billion that has already been spent to prop up the ailing auto maker. By some estimates in Detroit, tens of billions beyond that amount may be required, the daily added.

The United Automobile Workers (UAW), meanwhile, would hold up to 20 per cent through its retiree health care fund, and bondholders and other parties will get the remaining share. Shareholders would be virtually wiped out, the report pointed out.

"Although it has been clear for weeks that Treasury would have a majority stake of a reconstituted GM, a 70 per cent share -- a figure that could still change -- is higher than what had been expected," The New York Times said.

According to the daily, the prospect of GM effectively owned by the government raises a number of thorny questions.

"Countless policy decisions -- on matters such as fuel economy standards, tax incentives to replace aging cars and green technology initiatives -- will present conflicting interests," the publication noted.

However, the report pointed out that President Barack Obama aides have consistently said they would be reluctant shareholders, and they plan no operating role in the company.

"No one is going to put the US government employees on the GM board," the daily said quoting one person close to the ongoing discussions.

Quoting the person, the report noted that the day-to-day running of the firm, would be left to professional managers, and the government would not be involved in decisions about closing factories, renegotiating contracts or selecting product lines.

The report attributing to GM said that the auto maker expected the UAW's health care trust, called Voluntary Employee Beneficiary Association or VEBA would receive 39 per cent of the company, bondholders 9 per cent, shareholders one per cent, and the rest going to the Treasury.

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