April 27 (Bloomberg) -- General Motors Corp., working to stave off a June 1 U.S.-backed bankruptcy, stepped up dealer shutdowns and job cuts and offered equity to bondholders under a plan to reduce liabilities by $44 billion.

GM will shrink the number of dealers 42 percent to 3,600 and drop more union and salaried positions by the end of 2010, according to a regulatory filing today. Holders of $27.5 billion in bonds would receive 225 shares of stock for each $1,000 in principal. The shares soared the most since November.

Chief Executive Officer Fritz Henderson needs the debt reduction and savings so the largest U.S. automaker can restructure outside of court and avoid being forced into bankruptcy protection in 35 days. He is still seeking an agreement to trim obligations to a union health-care trust.

“Today’s bond exchange filing represents an important step in GM’s effort to restructure,” the Obama administration’s auto task force said in a statement. “The administration has made no final decision regarding the treatment of its current loan to GM or with respect to any future investments in the company.”

GM said 90 percent of the bondholders need to accept the exchange offer to for the company to avoid bankruptcy. If the plan is successful, GM would be profitable on an operating basis next year, Henderson said today.

60 Billion Shares

GM also said that existing equity holders, with 610.5 million shares outstanding, will own about 1 percent of the restructured company on a pro-forma basis, after about 60 billion more shares are issued. Bondholders would hold 10 percent of the new shares and the U.S. and the United Auto Workers union would divide the remaining 89 percent, the Detroit-based automaker said.

GM surged 43 cents, or 25 percent, to $2.12 at 10:29 a.m. in New York Stock Exchange composite trading. The shares touched $2.25 earlier for a 33 percent advance that was the most in intraday trading since Nov. 26.

The dealership reductions accelerate a plan that originally called for a 34 percent trim by 2014. The U.S. union workforce will fall to 40,000 by the end of next year from 62,000 in 2008. The earlier target was for 46,800 positions.

Trimming Brands

The Pontiac brand will be eliminated, also by the end of 2010, and talks are under way on a sale of the Saturn unit to dealers, GM said. The goal is to phase out Saturn in 2009, instead of 2011 as previously discussed. With Hummer and Saab already targeted for disposal, GM’s remaining U.S. brands will be Chevrolet, Buick, GMC and Cadillac.

“We allocate too many resources over too many things,” Henderson said at a briefing for reporters in Detroit. “I’m in favor of getting great results instead of being big.”

By 2010, the company will sell 34 nameplates in the U.S., down from 48 last year. U.S. hourly labor costs will be slashed by 34 percent compared with 2008 levels, and the number of domestic manufacturing locations will fall to 31 from 47, according to today’s filing.

GM will also cut North American structural costs to $23.2 billion next year, or a $1.8 billion bigger reduction than originally planned. GM will roll out additional details to dealers and others throughout May, Henderson said.

U.S. Market

The cuts are designed to ensure that GM can be profitable in a U.S. market with sales of as few as 10 million autos, 13 percent lower than previously projected. The annual sales rate was 9.9 million in March, after GM said Feb. 17 its break-even target was 11.5 million to 12 million.

Losses have totaled $82 billion since 2004, GM’s last profitable year, pushing the company to the brink of collapse before then-President George W. Bush approved the first installment of emergency U.S. loans in December.

The U.S. Treasury said April 24 that it provided an additional $2 billion in aid to keep GM operating, pushing the automaker’s total to $15.4 billion. The new money is part of $5 billion in extra loans disclosed last week in a report by the special inspector general for the Troubled Asset Relief Program.

GM said today it plans to seek $27 billion in total funds from the government. GM is asking the Treasury to accept about $10 billion worth of the debt as equity in the new company, according to the filing.

GM’s 8.375 percent bonds due in July 2033 rose 2 cents to 10.75 cents on the dollar, yielding 77 percent, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority.

Health-Care Fund

GM is also attempting to restructure the automaker’s $20 billion obligation to a UAW-run retiree health-care fund. If a deal can be reached with the United Auto Workers, half that obligation, or $10 billion in cash, “will be extinguished in exchange for GM common stock,” according to the filing.

The other $10 billion in cash would be paid in installments over a timetable that is still being negotiated between GM and the union.

To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net; Katie Merx in Southfield, Michigan, at kmerx@bloomberg.net.

Last Updated: April 27, 2009 11:37 EDT