And that’s just a start.  Barack Obama’s hand-picked CEO of the automaker will start layoffs this week as GM heads into bankruptcy.  The potential bankruptcy could result in a lot more layoffs, unless autoworkers agree to take nearly-worthless stock in exchange for the pension and health-care benefits that have all but crippled GM:

About 1,600 workers at General Motors Corp. will lose their jobs in the next few days as the troubled automaker accelerates cost cuts in order to qualify for more government aid. …

GM must cut costs and win concessions from bondholders and its unions in order to get more government aid. The government’s auto task force has said the company must persuade the holders of $28 billion in GM bonds to take stock in exchange for part of the debt.

Unions in the U.S. and Canada must agree to concessions, too. For GM to qualify for more help, the United Auto Workers must agree to take stock for part of the roughly $20 billion that GM must pay into a union-run trust that will take over retiree health care costs starting next year.

If it doesn’t restructure enough by the deadline, Detroit-based GM could be forced into Chapter 11 bankruptcy protection with the government providing financing. The government advocates a short “surgical” bankruptcy to cancel debt, change union contracts and separate underperforming units from the company.

Layoffs are inevitable, so this comes as no large surprise, except perhaps for the politics of its timing.  GM faces pressure to restructure in order to safeguard the $14 billion it received late last year at the insistence of Congress and Henry Paulson.  They need to get themselves into good enough shape to qualify for more government subsidies, but one main justification for that support is saving American manufacturing jobs.  Conducting layoffs while asking for more money from the Democrats on Capitol Hill and the White House won’t make them any more popular with the unions.

Neither will the deal that Obama wants the UAW to swallow.  The pension and health-care fund needs cash, probably now more than ever, not stock from a company riding the edge of bankruptcy already.  Obama is demanding that the union accept the equivalent of junk bonds instead of cash, which will force the union to cover much more of the costs for their trust funds — especially if GM stock remains moribund at its current level. Without taking the deal, though, GM will go under, and the bankruptcy will allow them to break the union contracts and renegotiate compensation from scratch, which will destroy the UAW’s credibility and prompt a backlash against Obama.

Shedding these obligations will certainly help GM become more competitive.  They produce good-quality vehicles but at a cost disadvantage with its competitors over compensation.  That’s why GM could sell as many cars as Toyota did in 2007 and suffer a billion-dollar loss while the Japanese automaker could turn a profit.  The labor force needs trimming, especially since GM needs to narrow their product lines to quit competing against itself in the market, but the actual per-hour salary and the number of jobs matter much less than the pension obligations that have been killing GM.

Solving that problem will create a lot of pain for both GM and its workers. Can the two sides agree to share the pain?