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