AUSWR
The Association of U S West Retirees
 

 

 

UAW, GM Reach Accord
By Sharon Terlep
The Wall Street Journal
Thursday, May 21, 2009

General Motors Corp. and the United Auto Workers reached a deal that will reduce the auto maker's $20 billion obligation to fund retiree medical obligations, the union announced Thursday.

The agreement is a key element of GM's plans to restructure its balance sheet under close watch of the Obama administration as it heads toward an increasingly likely bankruptcy filling by June 1.

The auto maker had been looking to cut a deal in which it would pay half, or about $10 billion, of its obligations to a retiree health-care trust in cash and give the union a 39% equity stake in the company.

The deal still needs to be approved by GM's 60,000 UAW-represented workers, thousands of whom are facing layoffs as the auto maker slashes jobs.

The union and GM in 2007 reached a landmark agreement in which the union agreed to take over $35 billion in retiree medical obligations in the form of a company-funded trust called a Voluntary Employees' Beneficiary Association.

For GM, the trust ended the company's growing exposure to rising health-care costs by capping its future obligations.

GM already has provided about $15 billion to the fund, but owes $20 billion more under the 2007 agreement.

Along with a new deal on the retiree trust, the modified labor pact will include union concessions designed to slash GM's hourly labor costs and put them more in line with the U.S. operations of foreign-based car makers.

GM faces a June 1 deadline from the U.S. Treasury to reach cost-cutting agreements with the union and its debt holders, as well as to restructure its dealer network.  If it can't reach the agreements by that date the government has told GM it will need to file for bankruptcy protection.

Resolving the UAW issues has been a key impediment in GM's talks with bondholders, some of whom have argued that the union is getting too sweet a deal in GM's offer of a major equity stake in the revamped car maker in exchange for concessions.

GM last week told about 1,100 of its U.S. dealers that their contracts won't be renewed next year, part of a plan to shrink the dealer network 40%.

Write to Sharon Terlep at sharon.terlep@dowjones.com

http://online.wsj.com/article/SB124292276405243793.html?mod=djmr_octuse6purl6