DETROIT — The United Auto Workers union has agreed on a tentative deal with the government and General Motors Corp. that would cut labor costs, close factories and change the way a union-run trust for retiree health care is funded.
The move is a key step toward GM's efforts to restructure outside of bankruptcy court, but GM still needs bondholders who hold $27 billion in unsecured debt to accept equity in the company in place of the $27 billion they're owed. Analysts have said it is nearly impossible that the required 90 percent of bondholders will agree to the offer.
GM, which has received $15.4 billion in federal loans, faces a June 1 government-imposed deadline to restructure or be forced into bankruptcy protection.
The union announced its deal in a short statement Thursday, but the details were withheld pending meetings with members to explain the terms. Union members still have to vote on their deal, and plant-level union officials have been summoned to Detroit on Tuesday to hear details.
The UAW statement made no mention of factory closings or production of vehicles outside the U.S., items that the union has protested in Detroit and Washington as the deadline approaches. But a person briefed on the deal said Thursday that it includes an agreement on the factories. The person requested anonymity because union members have not been told details.
GM plans to close 16 factories, costing 21,000 hourly workers their jobs, as it tries to cut labor costs and shrink its manufacturing footprint to match lower demand for its products. Of the 16, two have been announced previously, an engine plant in Massena, N.Y., and a stamping plant in suburban Grand Rapids, Mich.
GM has about 61,000 hourly workers in the U.S. but plans to take that number down to 40,000 by 2010.
The Obama administration welcomed the agreement, saying
it is a positive development in GM's "effort to restructure and become a strong, viable company going forward," an administration official said. GM would not comment.
The deal apparently came after two days of talks in Washington, D.C., involving UAW President Ron Gettelfinger and new GM CEO Fritz Henderson. The two men were largely responsible for a 2007 contract agreement, with Henderson stopping Gettelfinger from walking out when the talks reached impasse. The men began meeting after appearing together at an White House news conference Tuesday to announce higher fuel economy standards.
The Treasury's auto task force had pushed for the union to take GM stock in exchange for 50 percent of the $20 billion the company must pay into the trust, called a voluntary employees beneficiary association.
UAW officials have said the union's agreement with Chrysler reached last month will serve as a template for any deal with GM, but some differences had to be worked out.
At Chrysler, the UAW agreed to take 55 percent of the company's stock in exchange for roughly $6 billion of the $10.6 billion that Chrysler owes the retiree health care trust.
GM has said it is negotiating to give the UAW about 39 percent of its stock in exchange for roughly half the $20 billion it owes to the trust. Half the stock would go to the government, with 10 percent going to bondholders in exchange for wiping out $27 billion in GM debt. The remaining 1 percent would go to current shareholders.
Bondholders have resisted the 10 percent offer, saying they're getting too little for the amount of money they are owed. The offer expires Tuesday but could be extended.
A spokesman for a committee of GM's bondholders had no immediate comment on the union agreement.
If its bond exchange offer goes through, GM plans to issue 62 billion new shares and then do a 1-for-100 reverse stock split. The whole deal would severely cut the value of GM's existing shares.
Also under the Chrysler deal, workers will no longer get most of their pay if they are laid off and placed in the controversial "jobs bank." Instead, they will get 65 to 70 percent of their base pay to supplement state unemployment benefits. The length of time they are paid varies by seniority, but workers with 20 or more years get supplemental pay for a year, then they get 50 percent for another 52 weeks.
Cost-of-living pay raises also were suspended through 2011, and a provision was added for binding arbitration on a new contract through 2015.
The union also agreed to consolidate nonskilled labor job classifications into a team concept at all factories. Performance and Christmas bonuses will be suspended this year and next to help pay health care costs.