What sale means to UAW, taxpayers

July 6, 2009

What sale means to UAW, taxpayers

BY Greg Gardner

General Motors’ bankruptcy exit carries risks and rewards for a variety of groups. Here’s a brief look at likely impacts on several constituencies:

Shareholders: They are wiped out.

Secured lenders: They received the face value of their loans.

Unsecured bondholders: They own 10% of the new company. Those with enough patience and nerve may make money in their lifetimes.

U.S. and Canadian taxpayers: They own 60.5% and 12%, respectively. The value depends on how profitable GM can be, but that will take time. The Obama Auto Task Force wants to take the company public in 2010, but that could be too soon for taxpayers to turn a profit, or break even, on the more than $50 billion they’ve invested in GM. The sooner the governments sell off, the less likely any loans will be repaid.

UAW active workers: They have frozen wages through 2011, agreed not to strike through fall of 2015. They likely will be offered more buyouts so GM can take advantage of the lower $14 an hour wage for new hires.

UAW retirees: Cuts in health care benefits will be inevitable because the union’s Voluntary Employee Beneficiary Association will own 17.5% of GM. Unless GM recovers faster than anyone expects, the VEBA will not have enough value to pay for current level of benefits indefinitely.

International Union of Electrical Workers retirees: Among the bankruptcy’s sacrificial lambs, they get no equity in the new company and have no VEBA. GM will stop funding health care benefits for 50,000 IUE retirees and their dependents.

Dealers: About 2,000 dealers agreed to “wind down” their GM franchises. Theoretically, that may boost profitability of the 3,600 survivors. That assumes GM can stabilize its market share, bring new models to market quickly and banks resume making car loans at less-than-loan-shark interest rates.

Current GM management: There are more changes to come no matter how many times President Obama says he’s not running the car companies.

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