General Motors Corp on Monday said it would cut debt, close plants, slash jobs and drop the Pontiac brand as part of a sweeping restructuring that would see the automaker emerge under the ownership control of the U.S. government and its major union.

GM Chief Executive Fritz Henderson also said the automaker would file for bankruptcy protection if an offer to exchange bonds for shares in the company failed to cut $27 billion in bond debt by about 90 percent or other changes faltered.

I'm a believer in dealing with reality, Henderson told reporters, adding that the risk of a Chapter 11 filing by the automaker was now more likely.

The new GM that would emerge from the restructuring would be 89 percent-owned by the U.S. government and the United Auto Workers unions, provided that workers and officials approve plans to take an ownership stake in exchange for debt.

The bond exchange needs to be successful for us to avoid bankruptcy, Henderson said. It's not impossible, but bankruptcy is now more probable.

Responding to criticism that its prior turnaround plans had been too slow-moving, GM also outlined deep cuts by the end of 2010: reducing the number of U.S. plants to 34 from 47, slashing the U.S. hourly workforce by about 21,000 to 40,000 and cutting its dealer network to 3,605 from 6,246 stores.

The Obama administration's autos task force, which has been overseeing GM's planning for the past month, said the steps showed the automaker was making progress toward viability.

Today's bond exchange filing represents an important step in GM's effort to restructure, the task force headed by former investment banker Steve Rattner said in a statement.

GM shares jumped 23 percent. GM bonds also moved higher.

Overall, GM hopes to cut $44 billion of debt. That will happen through the bond exchange and by paying off half of the $20 billion it owes the UAW with an equity stake of nearly 40 percent of the restructured company.

The U.S. Treasury would convert about $10 billion of the emergency funding it has provided GM since the start of the year in exchange for a stake of more than 50 percent.

That would leave existing bondholders with a 10 percent ownership of the restructured automaker, a sharply lower payout than U.S. officials were prepared to offer the UAW.

In a filing with the Securities and Exchange Commission, GM said it would offer 225 shares of its common stock for each $1,000 principal of outstanding bonds.

Under the terms of the exchange, the bondholders would have up to 10 percent of GM common stock, a level dictated by the U.S. Treasury and current stockholders would have 1 percent.

I'm not going to get into what's fair, Henderson said. That's for individual bondholders to determine.

DIGGING DEEPER

GM, which last week took $2 billion of emergency U.S. government loans to bring its total to $15.4 billion so far, was told by the Obama administration in late March it had to June 1 to dig deeper and move faster for continued support.

The automaker said it would phase out the Pontiac brand by the end of next year and could stop production of its Saturn models by the end of 2009.

A sale of the Hummer SUV brand is still a reasonable likelihood, Henderson said.

The steps would leave GM, formerly the world's largest automaker with four core brands -- Chevrolet, Cadillac, Buick and GMC -- and a network of international alliances as its European unit Opel is sold to a new investor.

GM expects to break even with the U.S. auto market at annual sales near 10 million units after the deep cost cuts. That would allow it to begin generating cash as soon as next year if the U.S. market sees an even modest recovery, Henderson said.

The cuts accelerate plans that were submitted to the Obama administration, but rejected as too small and too slow when former Chief Executive Rick Wagoner was ousted a month ago.

GM said it would close or idle six additional North American plants from the mid-February plan that was rejected by the Obama administration. The automaker has 47 assembly, powertrain and stamping plants in the United States.

The automaker's cuts in hourly workers represent an additional 7,000 to 8,000 from the earlier plan and the dealer reductions represent an additional 500 dealers coming four years earlier than its previous plan.

(Reporting by David Bailey, Kevin Krolicki, Soyoung Kim and Poornima Gupta, editing by Dave Zimmerman)

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