REBUILDING NEW ORLEANS INSTEAD OF RETHINKING IT:

Obama makes his big move on GM: Automaker to seek protection today; President to lay out turnaround scenario (David E. Sanger and Jeff Zeleny, June 1, 2009, New York Times)

[President Obama] will spell out a strategy in which the shrunken GM can make money even if new car sales remain at a sluggish 10 million a year in the United States and even if GM, once the giant of the industry, holds only a 13 percent share of sales.

But to get there, American taxpayers will invest $30 billion more in the company, atop the $20 billion already spent to keep it solvent.

The company will also have to shed 21,000 union workers and close 12 to 20 factories, steps that most analysts thought could never be pushed through by a Democratic president allied with organized labor.

Forty percent of the company's 6,000 dealers will close; the workers' union will be forced to finance half of its $20 billion healthcare fund with stock of uncertain value in the restructured GM; and bondholders, including many retirees, will be forced to take stock worth 10 cents for every dollar they lent the company.

The company's last steps toward bankruptcy took place over the weekend as a majority of GM bondholders agreed not to challenge the filing in court and to exchange their debt for stock at about 10 cents of equity for every dollar owed by the company.

To assist in the restructuring, the automaker is expected to hire the consulting firm Alix Partners, which has worked on several major bankruptcies, including those for Enron and Kmart. One of the firm's partners, Al Koch, is expected to manage the liquidation of corporate assets that GM will shed during its Chapter 11 restructuring, people with knowledge of the bankruptcy strategy said.

Obama is taking several risks under the plan. None may be bigger than the decision that the US government will take a 60 percent share of the stock in a new GM, leaving taxpayers vulnerable if the overhaul is not successful. (Canada is taking a 12 percent stake.)

"We don't think that after this next $30 billion, they will need more money," one senior administration official said. "But the fact is there are things you don't know - like when the car market will come back and how much Toyota and Honda and Volkswagen will benefit from the chaos."

The administration said it had concluded that if Washington just kept lending money to GM, loading it with debt, the company would be unable to both invest in its business and pay back the loans.

Obama is expected to argue that any alternative to his plan would be worse and that a liquidation of GM - the only other real option - would send the unemployment rate soaring over 10 percent and would radiate damage throughout the economy.