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Old 05-21-2009, 12:04 PM   #1
Tran
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Post G.M. and Union Reach Deal on Contract Changes

JUST ANNOUNCED ON NYTIMES:

DETROIT — The United Automobile Workers union said Thursday that it had reached a tentative deal with General Motors and the Treasury Department that would help G.M. cut its labor costs and reduce its obligations to a new retiree health care fund by billions of dollars.

The U.A.W. did not release details of the deal, which must be ratified by G.M. workers. The agreement is expected to be similar to one reached last month with Chrysler, which allowed that automaker to substitute equity for up to half of the $10 billion owed to its retiree health care fund. G.M. owes about twice that amount to the fund for its workers.

The deal is one of the government’s requirements for G.M. to win more loans but not enough in itself to keep the carmaker from having to file for bankruptcy protection on June 1, the government’s deadline. More important, G.M. needs to persuade nearly all of the bondholders who hold more than $27 billion of its debt to swap their claims for stock in the restructured company. Most analysts expect the offer to fail.

Two days ago, G.M. said in a filing with the Securities and Exchange Commission that it did not expect to reach an agreement with the U.A.W. before May 26, the deadline for bondholders to decide on the exchange offer.

But the U.A.W.’s president, Ron Gettelfinger, and G.M.’s chief executive, Fritz Henderson, have been involved in intense talks with Treasury officials in Washington since Monday.

G.M. has said it wants to give the U.A.W. nearly 39 percent of the company, while bondholders would receive a 10 percent stake and existing shareholders would account for 1 percent. The Treasury, which has loaned $15.4 billion to G.M. since December, would forgive half of that debt and receive a majority interest in G.M.

Earlier this month, Mr. Gettelfinger said he expected the union to reach an agreement with G.M. that contained nearly identical terms as the one with Chrysler. “I cannot believe that Treasury would mediate something better at G.M. to put Chrysler at a disadvantage,” he said on May 4. “The collective bargaining piece of it should pretty much be a template.”

Yet on Tuesday, he was quoted by reporters in Washington as saying that the parties had “a long way to go” to reach a deal.

Only two major obstacles remain to avoid a bankruptcy filing before GM's government-imposed June 1 deadline. The first is getting CAW to follow the UAW's lead and sign a new agreement, and the second is to get the majority of GM bondholders to accept a debt-for-equity swap that would erase $27 billion of the automaker's debt but leave creditors with only a 10% stake in the company. The UAW would have its proposed 38% stake, common GM shareholders would hold a 1% stake and the U.S. government would have a majority stake of 51%. Its creditors, however, do not appear willing to accept GM's debt-for-equity offer as it stands, so unless a miracle happens in the next two weeks, a Chrysler-like Chapter 11 bankruptcy filing still appears the most likely result.
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