UAW agrees to new GM deal

Union agrees with change in funding for retiree health care, one of key obstacles GM needed to clear to avoid bankruptcy. But other hurdles remain.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Chris Isidore, CNNMoney.com senior writer

For Money's upcoming Best Places to Live list, we'd like to know: What's most important to you when choosing where to live?
  • Good jobs
  • Affordable homes
  • Top schools
  • Low crime
  • Things to do

NEW YORK (CNNMoney.com) -- The United Auto Workers union has reached a deal with the Treasury Department and General Motors on changing its labor contract with the troubled automaker, one of the key obstacles that needed to be cleared for GM to potentially avoid being forced into bankruptcy in the next two weeks.

The union did not disclose any details of the agreement, but the deal is expected to be similar to previous pacts with Ford Motor (F, Fortune 500) and Chrysler LLC. The union would likely accept GM (GM, Fortune 500) stock rather than cash to cover future retiree health care costs at the company.

"Today's announcement is a positive development in GM's effort to restructure and become a strong, viable company going forward," an administration official said in a statement.

A GM spokesman had little comment other than to confirm the deal. Like the union, GM declined to share details about the agreement.

GM has proposed a restructuring plan that would leave the UAW trust funds that cover those health care costs with up to a 38% stake in the company. Treasury would hold a majority stake in GM under this plan.

The deal still needs to be ratified by rank and file union members at GM before it can take effect. And even if it is approved by UAW members, that will not be enough to keep the nation's largest automaker out of bankruptcy court.

The biggest hurdle for GM will be to get creditors holding $27 billion of its bonds to accept a debt-for-stock swap that would leave them with only 10% of the company. GM has until May 26 to reach an agreement with bondholders and a government-imposed deadline of June 1 to issue a new restructuring plan.

GM Chief Executive Fritz Henderson has repeatedly said that the difficulty in reaching an agreement with bondholders makes a GM bankruptcy filing "probable."

The union has already agreed to a number of changes in contracts with all the major automakers, including the elimination of the so-called "jobs bank," a program that guaranteed members close to a full salary during the life of the contract if they were laid-off and their unemployment benefits ran out.

GM, Ford and Chrysler had previously promised lifetime health care coverage for about 650,000 U.S. employees, retirees and their family members.

But the cost of providing the coverage had become a major competitive disadvantage compared to the nonunion U.S. plants operated by Asian rivals such as Toyota Motor (TM) and Honda Motor (HMC). According to some estimates, the health care expenses added about $1,500 to the cost of producing every vehicle.

So in its 2007 labor deals with GM, Ford and Chrysler, the UAW agreed to have the responsibility for that health care coverage shifted to trust funds administered by the union.

The companies were to each contribute billions in cash and other securities into the funds during 2008 and 2009 so the funds could start paying the benefits in 2010. GM was due to put about $20 billion into the fund.

But the sharp plunge in auto sales in 2008 and soaring losses at GM and Chrysler left them without enough cash needed to pay into the trust funds.

That was one reason why GM and Chrysler were forced to turn to Treasury for cash infusions to stay in business. Ford has so far avoided a federal bailout due to a stronger cash position.

Chrysler filed for bankruptcy last month, despite reaching a deal with the UAW that is expected to give it about a 55% stake in Chrysler.

UAW President Ron Gettelfinger recently said the union intends to sell the shares in GM and Chrysler that it will receive as soon as possible, rather than hang onto its large stakes in both companies. To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.