General Motors Corp.'s offer to bondholders to swap their debt for company stock has failed, which means the ailing automaker is likely headed for bankruptcy protection.

GM has been working feverishly to meet a June 1 deadline, imposed by the U.S. government, to complete its restructuring process before it will have to file for Chapter 11 bankruptcy.

In a statement issued early Wednesday, the company said not enough bondholders agreed to an offer to exchange US$27 billion in unsecured debt for about 10 per cent of company stock.

"The principal amount of notes tendered was substantially less than the amount required by GM to satisfy the debt reduction requirement under its loan agreements with the U.S. Department of the Treasury," the company statement said.

The statement said the company's board will meet later this week to plan its next move.

GM shares dropped 22 cents, or 15.3 per cent, to trade at $1.22 in afternoon trading Wednesday.

Peter Morici, an auto industry analyst and professor at the University of Maryland, said the bankruptcy filing is now inevitable.

"Given where we are now it is the best outcome because it provides the only prospect for truly accomplishing a competitive company," Morici said Wednesday on CTV News Channel.

The U.S. government has given GM more than $19 billion in loans. The Obama administration has told the company that more funds will only be forthcoming if 90 per cent of bondholders, in addition to unionized workers, agreed to cost-cutting concessions.

Those measures must include debt reduction, cuts to labour costs and plant closures.

On Tuesday, the United Auto Workers union said it would accept a 20 per cent stake in GM, which was less than the 39 per cent originally agreed upon.

The extra 19 per cent of shares would have gone to bondholders had the majority of them agreed to tender their debt.

But since that deal now appears to be dead, those shares will likely go to the U.S. government, which could end up pumping as much as another $30 billion into the company.

The Canadian federal and Ontario governments are expected to give GM about $9 billion in aid, for which they will also receive company shares.

Together, the U.S. and Canadian governments will likely own as much as 75 per cent of the company.

On Tuesday, the UAW said it reached a deal with GM to accept a 17.5 per cent stake in the company, in addition to a warrant for another 2.5 per cent stake to help fund the $20 billion that GM must place in a trust for retiree health care costs.

In return, GM promised the union $6.5 billion in preferred shares, plus a $2.5 billion note. The other $10 billion will come from health care trust funds that the company has established.

About 61,000 UAW members will vote Thursday on the new deal, which also froze wages in addition to cutting performance bonuses, cost-of-living raises and health care benefits for retirees.

Consequences for Canada

Should GM file for bankruptcy in the U.S., it appears likely that it would follow rival Chrysler's decision not to file in Canada, as well.

The company recently negotiated a labour-concession deal with the Canadian Auto Workers union that freezes pensions until 2015 and cuts labour costs by more than $15 per hour.

GM also agreed to immediately re-top its under-funded pension plan in the deal, which CAW president Ken Lewenza said would likely remain intact should the company file for bankruptcy.

The company had previously said that its southern Ontario assembly plants will not be included in a rotating, nine-week shutdown of plants in the U.S. this summer.

However, part plants in St. Catharines and Windsor, Ont., will likely temporarily close due to a lack of demand.

GM has already cut its Canadian workforce by the thousands, including shedding 2,600 jobs with the recent closure of a truck plant in Oshawa.

The company will also close a Windsor, Ont. transmission plant next year, which will put 1,400 more people out of work.

Ontario Premier Dalton McGuinty said Wednesday that legacy costs -- covering the health and pension plans of thousands of retirees - are hampering GM and need to be dealt with so a healthy company can emerge from bankruptcy.

"We have to be sensible about this. We can not put GM on a sound financial footing without finding a way to address outstanding legacy costs," McGuinty told reporters. "Some of those are pension related, some of those are other obligations, health care costs, dental care, eye care...those are all real financial obligations on the part of GM."

With files from The Associated Press