May 23, 2009
GM in Last-Ditch Talks to Avoid Bankruptcy
as Deadline Looms
Chicago
General Motors (GM) has reached a tentative labor agreement with the
United Auto Workers (UAW) union in a bid to remove one of the major
obstacles in its restructuring.
According to Detroit News, GM autoworkers are to vote soon on the
deal, as the company moves toward a government-imposed June 1
deadline to restructure or file for bankruptcy.
The US automaker still has much ground to cover to avoid bankruptcy
and dispel fears shared by the investors, suppliers and dealers, the
report said.
While details of the agreement, reached Thursday, were not
disclosed, the deal is said to be similar to the new Chrysler LLC
labor contract that included a reduction in break times, elimination
of cost-of-living raises and $600 Christmas bonuses and a provision
that prohibits the UAW from striking till 2015 autumn.
The tentative labor agreement between the UAW and GM will likely
save the troubled automaker more than $1 billion, the report said.
GM has also reached a labor agreement with Canadian Auto Workers'
unions which would allow the company to reduce labor and healthcare
costs.
Meanwhile, GM said Friday it had received an extra $4 billion in
emergency government loan from the US Treasury. The government has
already injected $19.4 billion since the beginning of the year to
keep the ailing automaker afloat.
On Friday, GM outlined a strategy to cut 1,100 dealers nationwide -
a plan the automaker intends to complete in or outside of
bankruptcy, said Mark LaNeve, GM's top North American sales and
marketing executive.
GM's decision to scale down about 40 percent of its US dealership
network will result in the laying off of 137,330 employees and
eliminate an estimated $1.7 billion in sales tax revenue for state
and local governments, according to the National Automobile Dealers
Association. In addition, GM will lose an estimated $35 billion in
sales revenue.
Despite the deal with the UAW and the dealership cut plan, an
agreement with bondholders remains one of the last major hurdles for
GM to clear in order to avoid bankruptcy.
A GM spokeswoman said Friday the company would go ahead with its
plan for a bankruptcy if no agreement is reached with its
bondholders.
The company is currently holding $27.2 billion in debt with its
bondholders. It wants to reach a deal before next Tuesday, when its
bondholders must decide whether to exchange their bonds for 10
percent of GM's equity.
Without a labor deal, experts say, the already reluctant bondholders
would not consider exchanging what GM owes them for an ownership
stake in the reconstituted automaker.
GM said it would give bondholders a 10 percent stake in the
automaker, even though they currently own about 40 percent of the
company's debt, and the US treasury would get about a 50 percent
stake in the firm.
However, bondholders have issued a counter-offer that would give
them a 58 percent stake in the company. The US Treasury, however,
would not receive any stake in GM, and the automaker would remain
liable to pay back the government loan it received.
Meanwhile, US lawmakers told GM and White House officials that
bondholders must have a seat at the table during negotiations on how
the company would be restructured.
The company, the government, the union and the bondholders should
negotiate details of a reasonable debt-to-equity swap before
stepping into court, they said.
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