April 28 (Bloomberg) -- General Motors Corp., operating with $15.4 billion in U.S. aid, would be at least half owned by the U.S. government under the automaker’s plan to slash its debt and cut dealer ranks more than 40 percent.

The proposal, if accepted by the Obama administration, would give the Treasury at least half of the 60 billion shares in a reorganized GM, the automaker said yesterday. The U.S. would join European and Chinese governments in holding stakes in local automakers.

“Political economics are now part of the economy in the U.S.,” said Sean McAlinden, a labor analyst and economist at the Center for Automotive Research in Ann Arbor, Michigan. “They are going to control more of GM than the government of Lower Saxony owns of Volkswagen or France owns in Renault.”

The U.S. may end up as the biggest shareholder in the nation’s largest automaker by converting $10 billion of its loans into equity. The government gets preferential treatment over other GM creditors because its loans are secured by assets while the $27.5 billion in bond debt is unsecured.

Chief Executive Officer Fritz Henderson, installed by the Obama administration after his predecessor was asked to resign, needs the debt reduction and savings so GM can restructure outside of court and not be forced into bankruptcy in 34 days.

Government Power

The government has held veto power over GM expenditures of more than $100 million since a December rescue. The U.S. removed former CEO Rick Wagoner last month, named director Kent Kresa as chairman and told him to replace a majority of the 11 directors.

GM 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 get 10 percent of the new stock.

The U.S. and the United Auto Workers union would divide the remaining 89 percent, with at least 50 percent owned by the government, Henderson said.

France owns about 15 percent of Renault SA and the state of Lower Saxony, where Volkswagen AG’s Wolfsburg, Germany, headquarters is located, owns a 20.1 percent stake in that carmaker. Shanghai Auto Industry Corp., which is 100 percent city-government owned, has an 84 percent stake in SAIC Motor Corp., according to data compiled by Bloomberg.

U.S. Role

The role of the U.S. in GM is to develop a plan whereby the automaker can be self-reliant and not need federal aid to survive, White House spokesman Robert Gibbs said yesterday.

“This administration and this government have no desire to run an auto company on a day-to-day basis,” he said.

GM needs to cut liabilities so it can keep its current U.S. loans and borrow as much as $11.6 billion more. Under the survival plan outlined yesterday, GM will deepen its dealer cuts to 42 percent by 2010, from a planned 34 percent reduction by 2014. The proposal for a government ownership stake is still under review.

“What we’re starting to see again is the government beginning to act as if it is a business,” U.S. Representative Thaddeus McCotter, a Michigan Republican, said in yesterday in a Bloomberg Radio interview. “They are continuing to expand into the role of what the companies have traditionally done.”

‘Private-Equity Model’

Henderson said the government wants GM to develop a viable plan to ensure taxpayers get repaid in the case of government loans or get a good return in the case of equity.

“The process they are using actually is more of a private- equity model for how the business governance should work and not necessarily how we should run the business day-to-day,” he said on a conference call with analysts yesterday.

GM fell 23 cents, or 11 percent, to $1.81 at 4 p.m. in New York Stock Exchange composite trading. The shares soared 21 percent yesterday for the biggest increase since March 13.

GM’s 8.375 percent bonds due in July 2033 dropped 1.5 cents to 9 cents on the dollar, yielding 91.1 percent, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority.

The automaker’s cuts are designed to ensure profitability 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 an industry sales rate of 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.

“Government ownership wasn’t done by design, but by default,” said Harley Shaiken, a labor professor at the University of California at Berkeley. “It transcends the debate about government ownership, because it’s necessary to rescue the industry, and I think the government has no long-term goal to control the automakers.”

McCotter said it’s not a good practice to have industry run by so-called car czars, and supports a quick U.S. exit.

“Historically, we know what happened to the czar,” he said. “I don’t know why anyone would want to follow in those footsteps.”

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

Last Updated: April 28, 2009 16:10 EDT