30 December 2008

GM Prepares Ground for Post-Holiday Talks With UAW

As posted by: Wall Street Journal

DETROIT -- General Motors Corp., while holding preliminary discussions now with key constituents, is expected to wait until early January to begin deep talks with the United Auto Workers union, bondholders and the coming Obama administration, in an effort to work out agreements to comply with the terms of the bailout President George W. Bush announced last week.

GM and Chrysler LLC are supposed to get $13.4 billion in coming months, but are required, among other things, to cut labor costs and reduce their debt. If they make progress on their restructurings, they could get an additional $4 billion in February.

Following the Bush announcement, the two ailing auto makers got another shot in the arm from north of the border on Saturday, as the Canadian government and the province of Ontario said they will provide at least US$3.29 billion in loans to the Canadian units of GM and Chrysler.

Canada and Ontario had been poised for more than a week to provide an injection of cash once the U.S. government took action, and were promising to provide loans totaling 20% of whatever the U.S. offered.

"We cannot afford, in the United States or Canada, the catastrophic short-term collapse of the Big Three auto makers. The U.S. has signaled that they are not going to allow these companies to fail, and we will do our share of the North American package to see that this doesn't happen either," Canadian Prime Minister Stephen Harper said at a news conference on Saturday.

After spending the last several weeks lobbying Congress and the White House for bridge loans, GM officials got a breather over the weekend. This week they'll begin "brief and high level" talks with the UAW, bondholders, banks and suppliers, although it's unclear how much progress they can make with the Christmas holiday coming on Thursday, according to several people involved in discussions.

GM expects to receive its first round of loans from Washington by Dec. 29, the company's chief financial officer said on Friday, just in time to fund $6 billion to $8 billion in payments due to thousands of parts makers at the beginning of January.

Throughout the nation, UAW officials began bracing GM workers to make what they called "unpopular sacrifices." In a letter to assembly-line employees in Texas, the leaders of UAW Local 276 said that "strict conditions associated with the loans are non-negotiable and must be met by the stated deadline," which is March 31. The officials warned UAW workers that they may not hear any updates from the union's leadership in Detroit until after the holidays.

Brett Hoselton, a senior automotive analyst at KeyBanc Capital Markets, said in an interview that GM and Chrysler are likely headed for some tough talks with the United Auto Workers union, and must come away with significant cost cuts quickly in order to qualify for a second round of loans in the first quarter.

"Concessions need to happen, and happen soon," he said. "Because you're basically back to square one come February or March."

GM and Chrysler are likely to seek the complete elimination of the so-called Jobs Bank, a controversial program in which laid-off workers continue to get paid even when their plants close and they no longer report for work. UAW President Ron Gettelfinger has said the union will suspend the Jobs Bank.

GM is also being forced to cut about $40 billion of its $60 billion debt load, or $10 billion more than the auto maker was willing to cut under a plan it submitted to Congress in early December.

Pat O'Keefe, president of O'Keefe & Associates Consulting, a turnaround firm in Bloomfield Hills, Mich., said the auto makers can use the specter of bankruptcy to prod creditors into accepting new terms that help the auto makers.

"Bankruptcy is a failed negotiation," he said. "If they're unable to get a deal on a negotiated basis, they will use bankruptcy to push the parties that can't seem to come to the table."

On Friday, GM Chief Executive Rick Wagoner told reporters that government assistance is expected to give GM time to put together a plan that doesn't require a bankruptcy filing.

As it dives into negotiations with unions and investors, GM is keeping a close eye on developments at its lending affiliate, GMAC LLC, which won't receive any of the funds slated for GM's bailout. GM relies on GMAC to make loans to most of its dealers and a substantial chunk of GM car buyers. The firm, however is facing a liquidity crisis and is working with federal regulators on a plan that would allow it to become a bank holding company, and therefore separately tap the $700 billion in funds originally intended to bail out the finance industry.

Without that designation, GMAC is likely to collapse. The lender currently owes GM up to $1.5 billion in delayed payments related to wholesale financing for auto dealers, and that money is due Dec. 30. GM needs the money in order to pay its suppliers in early January. It is unclear what will happen if GMAC is unable to make that payment.

GM executives expect to resume discussions with President-elect Barack Obama's transition team shortly after the New Year. Mr. Obama is currently vacationing in Hawaii, and GM officials haven't been as closely in touch with his aides as they were when the auto maker was in discussions with Congress earlier in December about a bridge loan.

Even as it lobbied for White House aid, GM's management team was beginning to build contingency plans in the event it had to file for Chapter 11 bankruptcy protection. Many of the advisers it has been working with, including high-profile bankruptcy attorneys, are expected to continue working with Mr. Wagoner's management team in coming months.

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