Analyst: GM could borrow from UAW health care fund
Analyst: GM could borrow from UAW health care fund
Automotive News | July 3, 2008 - 1:52 pm EST
DETROIT — Could General Motors tap the prospective UAW retiree health care fund for cash?
JPMorgan analyst Himanshu Patel thinks so. In a report and conference call today, Patel said GM could raise $3 billion to $6 billion in cash by withdrawing the money from a $14.5 billion internal voluntary employee beneficiary association.
The full $14.5 billion is pledged in 2010 for a giant fund negotiated with the UAW last fall. That fund would pay for UAW retiree health care benefits, getting the liability off GM’s books.
Withdrawing the money temporarily, Patel said, would go a long way to raising the $10 billion in cash that he believes GM will need to avoid a cash crunch by the end of 2009. From the UAW’s standpoint, the union could earn 12 percent interest on the loan while helping GM out of a cash pinch.
"Why would the UAW agree to this? My short answer is they have to," Patel said.
He added: "The UAW now is extremely motivated to keep GM, Ford and Chrysler out of bankruptcy."
UAW headquarters was closed today, and spokesman Roger Kerson could not be reached for comment. GM spokesman Randy Arickx declined to comment on the fund or how much cash GM may need to raise.
Cash-raising options
Tapping the existing fund for a loan was one of a number of options that GM could consider to get it through a difficult 2008 and 2009, Patel said. The automaker also could borrow the money from banks, sell equity in profitable overseas operations or borrow against them, and sell other assets, he said.
GM has about $24 billion of cash today. But it is expected to spend about $12 billion in cash in 2008 and another $6 billion in 2009 as vehicle sales tumble in the face of a housing slump and high gasoline prices.
Unless GM raises additional cash, that would leave the automaker below the $9 billion to $10 billion it needs on hand to operate safely for two months, Patel said.
The existing $14.5 billion fund that GM has been putting aside for years for UAW retiree health care is not included in GM’s current $24 billion in cash.
That money is pledged to the UAW for a fund being established in 2010 that would eliminate a more than $50 billion retiree health care liability that GM has today for UAW retirees. Patel said GM legally could borrow as much as two years’ worth of health care obligations under the plan. GM’s annual UAW health care cost is about $3 billion.
Permission needed
GM would have to ask the UAW for permission to borrow against the existing fund, Patel said. But it probably would not be subject to a vote by the rank and file, given previous changes to the fund that the UAW leadership has negotiated with GM, he said.
Ford Motor Co. is in a better cash position than either GM or Chrysler, Patel said. Ford has $29 billion in cash and another $11 billion in available credit. It also is spending cash at a slightly slower rate than GM. Its cash spending is estimated at about $14 billion through 2008 and 2009, Patel said.
Ford is ahead of GM in funding a similar voluntary employee beneficiary association that it made with the UAW as part of last fall’s historic contract negotiations.
Ford already has put $5.5 billion into the fund, Ford spokesman Mark Truby says. That was made soon after the agreement was reached.
Ford is obligated to put another $400 million into the fund over the next eight years at the rate of $50 million a year. Truby says that will be no problem.
Amy Wilson contributed to this report
