GM in last-ditch talks to avoid bankruptcy as deadline looms (Lead)May 23rd, 2009 - 4:54 pm ICT by IANS
Chicago, May 23 (Xinhua) General Motors (GM) has reached a tentative labour 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 labour 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 labour agreement between the UAW and GM will likely save the troubled automaker more than $1 billion, the report said.
GM has also reached a labour agreement with Canadian Auto Workers’ unions which would allow the company to reduce labour 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 labour 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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