GM warns: Bid to restructure may fail

May 20, 2009

GM warns: Bid to restructure may fail

Union talks just keep getting tougher; expected deal not yet complete


General Motors Corp.’s efforts to restructure the company outside of bankruptcy showed signs of strain Tuesday.

The company warned in a Tuesday regulatory filing that it does not expect to have key deals with the UAW and U.S. Treasury completed before next Tuesday. That was previously promised as part of the company’s complicated effort to convert bondholders’ debt for an ownership stake in a reconstituted GM.

The UAW and Canadian Auto Workers both delivered messages Tuesday that illustrated how tough talks have become.

The CAW, in a flyer to members, even cautioned: "The next days will be worrisome and frightening."

"Brinksmanship is always going to be part of these deals," said David Cole, chairman of the Center for Automotive Research. "Everybody is in a situation where they are trying to get more."

GM’s filing said it would announce May 27 whether it would extend the bond exchange or declare it a failure. If it fails, GM faces bankruptcy.

A GM bankruptcy filing could send shock waves across America as it further slashes employees, voids contracts with suppliers and dealerships it deems unnecessary and reduces debt owed to banks, bondholders and others, who would be forced to absorb losses.

"The bondholders weren’t that excited to begin with and part of their concern was that it looked like the UAW was ending up with a better deal" than the creditors were getting, said Randy Paschke, chairman of the accounting department at Wayne State University.

Imports, health care are sticking points

Disagreements over changes to the UAW’s retiree health care trust and the union’s unhappiness with General Motors Corp.’s plans to increase imports from various foreign countries are believed to be throwing a wrench into labor talks.

"These are complex negotiations with high stakes," said Harley Shaiken, an expert in organized labor from the University of California, Berkeley. "I think they are complicated by the fact that the UAW is angry about the outsourcing decisions under the proposed restructuring."

Earlier in the week, GM and the UAW had appeared close to a deal on changes to the labor contract that would mean more than $1 billion in savings for GM, the Free Press was told. However, issues surrounding the retiree health care trust still needed to be completed.

But on Tuesday, UAW President Ron Gettelfinger told reporters in Washington that they had a "long way to go" to reach agreement, according to Bloomberg.

By the end of the day, GM filed a warning with the U.S. Securities and Exchange Commission that said it does not expect to have final deals with the UAW or U.S. Treasury by next Tuesday. That is the deadline for GM’s bondholders to accept or reject an offer to reduce what they are owed in return for an ownership stake in a reconstituted GM.

"In the event we reach agreement on one or more of the foregoing matters in connection with the exchange offers on or prior to May 26, 2009 … we will disclose the terms of these agreements," GM said.

GM is staying afloat on $15.4 billion in federal loans and faces a June 1 deadline to restructure the company or file for bankruptcy — something the company’s chief executive officer has said is more probable than not.

A successful bond exchange and UAW agreements on a modified labor contract and retiree health care trust are key to preventing a GM bankruptcy.

At the direction of the U.S. Treasury, GM is trying to get the UAW to accept half of the money the union is owed for retiree health care in company stock instead of cash.

The company also is seeking additional labor contract concessions to save money.

But the UAW has been increasingly critical of plans by GM to close 16 U.S. manufacturing facilities while planning to increase imports from China, Japan, Mexico and South Korea. That is despite GM’s argument that the proportion of vehicles it plans to build in U.S. facilities versus non-U.S. facilities will not change.

GM’s efforts to renegotiate labor agreements in Canada, meanwhile, also are hitting hurdles. The company and the Canadian Auto Workers union missed a May 15 deadline set by the Canadian government to have a deal.

The CAW began distributing flyers critical of the negotiating process. "Your elected bargaining committee representatives have been through hell in the last ten days," the union told members.

The union complained that involvement from the federal and provincial governments was complicating matters. It also accused the U.S. government of interference.

"Because the Canadian and U.S. governments are planning a joint effort to support GM’s restructuring, we now face a dangerous attempt to enforce a ‘cookie-cutter’ approach on our bargaining," the union said. "This philosophy is absolutely offensive to us as Canadians."

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