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Workers ratify new GM deal

The contract will cut the firm's debts when it emerges from a likely

May 30, 2009|Ken Bensinger and Jim Puzzanghera

AND JIM PUZZANGHERA, LOS ANGELES AND WASHINGTON — General Motors Corp. took steps Friday to grease the wheels of what's expected to be among the largest bankruptcies in U.S. history, winning new concessions from its largest union and closing a deal to sell its European unit.

GM has said it would hope to exit a potential bankruptcy as quickly as possible to keep costs down and prevent further damage to its sales, suppliers and reputation.

Securing the new contract from the United Auto Workers union, which will significantly reduce GM's debts while cutting its production costs, is a key step for the company. So is the sale of Opel to Canadian parts supplier Magna International.

"We very much appreciate the support of our employees and retirees," said Diana Tremblay, GM's vice president of labor relations. "Their shared sacrifices will enable GM to become a stronger, more viable company that will continue to deliver world-class cars and trucks."

A Chapter 11 filing by the nation's largest automaker is expected in the next few days.

The Detroit-based company said late Friday that its chief executive, Fritz Henderson, would hold a news conference in New York on Monday, but gave no further details.

Chrysler, which sought Chapter 11 protection a month ago, made its filing in New York Bankruptcy Court.

That case has proceeded quickly, and on Friday the judge in the case, Arthur Gonzalez, heard final arguments over the plan to sell most of the automaker's assets to a new entity that would be controlled by Italian automaker Fiat.

More than 300 groups and individuals have entered objections to the sale, including many of the 789 Chrysler dealers that face having their franchise contracts voided.

A decision on that sale is expected Monday and could pave the way for Chrysler to emerge from bankruptcy in a matter of weeks.

That would be an unusually rapid exit for a company as large and complex as an automaker and as such gives hope that GM's stay in court could be brief, despite its significantly larger, more complex nature.

White House Press Secretary Robert Gibbs said Friday that the administration was encouraged by the speed of Chrysler's case.

"I think Chrysler certainly gives . . . a hopeful example for General Motors," he said, adding that President Obama was encouraged with the progress GM was making in restructuring.

GM, which has already borrowed roughly $20 billion from the U.S. Treasury, is expected to get upward of $30 billion more to finance its bankruptcy case. An individual familiar with the administration's negotiations with GM and its stakeholders said the automaker could emerge from bankruptcy two to three months after filing.

At that point GM would be a far smaller, more agile company, with only $17 billion in debt, prepared to produce cars with scarcely half as many employees and sell them into a far smaller dealer network. It would also leave 72.5% of GM's shares in the hands of the U.S. government. A speedy process would depend, however, on the participation of holders of $27 billion in GM bonds.

They have until 2 p.m. Pacific time today to decide whether to accept an offer to swap their debt for a 10% stake in GM, plus warrants to buy 15% more in the future.

In turn, they must agree not to oppose a plan supported by the U.S. Treasury to sell the bulk of GM's assets into a new company, a process not unlike the one proposed in the Chrysler case. To date, 35% of the bondholders, by value, have agreed to take the deal. An earlier, less generous offer was rejected Tuesday by the bondholders.

On Friday, UAW President Ron Gettelfinger said about 74% of the union's production and skilled trade workers approved the new contract. The union passed an earlier round of concessions last month.

"We've made a tremendous amount of sacrifice," Gettelfinger said, adding that UAW workers would see a "dramatic reduction" in their benefits.

Earlier this week, the Canadian Auto Workers union ratified a contract with GM that also included substantial cost reductions.

The new UAW contract covers about 54,000 hourly employees at 46 GM facilities across the country. Under the new terms, the union will forgive about $10 billion in cash obligations GM owes to a retiree healthcare trust established in 2007 known as a Voluntary Employee Beneficiary Assn.

In exchange, the UAW will get 17.5% of the shares of a newly structured GM, with warrants to purchase an additional 2.5% once GM's market value reaches $75 billion.

The deal, which in many ways mirrors one won by Chrysler last month, also puts new restrictions on workers' time off and vacation pay, as well as on other workplace rules that will cut GM's production costs. It also allows GM to make a new round of buyout offers to its hourly workers.

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