I believe this is the mechanism for the government plan to take a 50% stake, with another 39% going to the UAW, in exchange for the outstanding debt those groups hold (the UAW is owed $$ for healthcare benefits). It's basically like a bankruptcy, wiping out shareholders in favor of creditors who take an equity stake in the newly emerged company. However, the the other difference between the government plan and bankruptcy is that the government plan is not considering traditional rules of the seniority of creditors that would be considered in a bankruptcy case, which is why, similar to the attempted Chrysler deal, some creditors are not happy.
In the end, whether by bankruptcy or government fiat, GM common shareholders are getting wiped out. As they should, since they invested in a business that failed.
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