GM makes last-ditch effort to avoid bankruptcy as deadline looms

• Source: xinhua
• [09:49 May 25 2009]
• Comments

With the June 1 restructuring deadline approaching, General Motors reached a tentative labor agreement with the United Auto Workers (UAW) in a bid to remove one of the major obstacles in its restructuring.

However, the US largest auto maker still has much ground to cover to avoid bankruptcy protection and dispel fears shared by investors, suppliers and dealers.

According to a report by the Detroit News, GM autoworkers are to vote soon on the deal, as GM moves toward a government-imposed June 1 deadline to restructure or file for bankruptcy.

While details of the agreement, reached on Thursday, were not disclosed, the deal is said to be similar to the new Chrysler LLC labor contract which included a reduction in break times, elimination of cost-of-living raises and 600-dollar Christmas bonuses and a provision that prohibits the UAW from striking through the fall of 2015.

The tentative labor agreement between the UAW and GM will likely save the troubled automaker more than the 1 billion dollars that an earlier proposed deal was to.

GM has also reached a labor agreement with Canadian Auto Workers unions that will allow the company to reduce some of its labor and retiree healthcare costs.

Meanwhile, GM said Friday that it had received an extra 4 billion dollars in emergency government loans from the US Treasury. The government has already injected a total of 19.4 billion dollars to keep the ailing automaker afloat since the beginning of the year.

Last 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 US dollars 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 dollars 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 that the company will go ahead with its plan for a bankruptcy if no agreement is reached with its bondholders.

The company is currently holding 27.2 billion dollars 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 labor deal, experts say, these already reluctant bondholders would not consider exchanging what GM owes them for an ownership stake in the reconstituted automaker.

GM has 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 GM.

Bondholders have issued a counteroffer 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 that the government has lent it.

Meanwhile, US Lawmakers told GM officials 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.