Megan McArdle writes that the plan talks of “an imaginary future where the bondholders evaporate into clouds of fairy dust, while American consumers mob its dealerships, begging for a piece of the GM dream.”

Rather than the $5 billion the government has previously said GM could be on the line to receive, GM asks in return for granting the majority stake a further $11.6 billion in bailout “loans.” GM asks the government to forgive half the loan debt in exchange for the GM stock.

GM will get rid of 40% of its dealers, axe the Pontiac division as of 2010 and lay off another 7,000 workers if the plan goes through as detailed. The company makes an offer that $27 billion in unsecured loans would keep it from bankruptcy, but CEO Fritz Henderson said that bankruptcy is a more likely option at this point. 90% of GM’s bondholders must agree to the plan as outlined in order for it to go through, and if GM cannot coax the bondholders into signing away most of their stock to the government, it will go into bankruptcy. Reports said Gm was “very likely” to ask a bankruptcy judge for the exact same terms. The return to stockholders would be “pennies on the dollar.”

Not surprisingly (as banks hold many GM loans), financial stocks fell on the news.

The government’s inspector general in charge of the auto bailout programs filed the report, which gives GM until June 1 to meet government-mandated conditions (Chrysler only has until April 30).

The retirees want to keep their benefits despite the car companies’ massive restructuring plans and possible bankruptcies. Salaried retirees are not covered by union contracts and are therefore more vulnerable during restructuring. The retirees are from GM, Chrysler, Ford and Delphi, the auto parts maker.

“Some people think that we’re the fat cat execs. That’s not true at all.” — said Chuck Austin, president of the National Chrysler Retirement Organization and an engineer who retired after 40 years.

Delphi has been in bankruptcy for three years and has already cut retirees’ health care coverage this year. White collar retirees include those in sales, marketing, administration, and others in middle management.

“I felt several weeks ago that it would be more probable that we would need to go through a bankruptcy process. I certainly feel that way. That continues today.” — Fritz Henderson, GM CEO

Henderson provided the insight into GM’s line of thinking as the first in what he promised would be a series of open dialogues ahead of the deadline looming at the end of May for GM to develop its final profitability plans. He reiterated GM’s commitment to its “four core brands”- Chevrolet, Cadillac, GMC and Buick- while keeping Pontiac as a “niche” brand. GM has already given the axe to Saturn, Saab and Hummer, and rumors abound that President Obama’s auto task force has further pressured GM to relieve itself of Pontiac and GMC. Henderson revealed that GM has received at least six offers for its European Opel brand, which it is also looking to offload during restructuring.

Henderson dismissed as “premature” reports that GM had been pre-approved for another $5 billion line of government credit in addition to the $13.4 billion it has already signed out from the taxpayers. He did say that $5 billion would be consistent with what GM had requested in February.

Henderson also gave an update on ongoing concessions talks with unions and bondholders, with which there is no agreement yet. Henderson said that concessions reached before February were made irrelevant when the Obama auto task force recommended “deeper and faster” cuts to achieve profitability.

Henderson likened the discussions with federal officials as similar to the private equity due diligence process. He became GM CEO when the Obama administration urged the firing of Henderson’s mentor Rick Wagoner from the GM CEO position.

CNBC’s auto reporter Phil Lebeau broke the news, along with the proposed sale price for the Hummer line: $150 million, very low for a line of autos.

If customers are scared away by a bankrtupcy, GM would have little hope of survival. A bankruptcy judge could rid GM of many of its most pressing problems, including crippling debt and union contracts, but it could not force Americans to buy GM’s cars. Obama has said that the federal government would finance a bankruptcy and back the carmaker’s manufacturer’s warranties.

“If you buy a car from Chrysler or General Motors you will be able to get your car serviced and repaired, just like always. Your warranty will be safe.” — President Obama

GM is now on a 60-day deadline to restructure its debt or face bankruptcy. The odds for success aren’t good: 90% of companies that enter Chapter 11 bankruptcy fail within three to five years.

After nine years as CEO and all of his career spent at GM, Wagoner was certainly in the wrong place at the wrong time, with higher oil prices bringing the death of SUVs and trucks, and foreign companies bringing in more competition and innovation.