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UAW to Take Major GM Stake

Union foregoes most of cash payout to VEBA.

by on May.26, 2009

The UAW becomes the second-largest shareholder in GM as part of its latest contract - but provides major concessions

UAW becomes the second-largest shareholder in GM in its latest deal - but provides major concessions.

The United Auto Workers Union will take a 17.5% stake in General Motors, and receive a $2.5 billion payout, due in increments between now and 2017, as part of the settlement workers will vote on this week.  An earlier proposal would have given the union as much as 39% of GM’s stock after a plan to issue 60 billion in new shares.

The agreement was reached as part of a trade-off for concessions designed to meet government demands for what GM CEO Fritz Henderson has described as “further and deeper” cuts in the automaker’s proposed turnaround plan.  The equity stake, worth an estimated $6.5 billion in preferred shares, would make the UAW the second largest shareholder in GM, following the U.S. government.  But the union is also giving up most of the cash it had originally expected to help fund its health care program, or VEBA.

But lenders, who were to become the third-largest equity holders, with 10%, are still battling the automaker over its demand that they swap out $27 billion in outstanding debt.  Barring a last-minute change of heart, that would likely force GM into bankruptcy by next Monday, June 1, if not sooner.  The lower stake provided the UAW could allow GM to sweeten a settlement offer to lenders.   

Subscribe to TheDetroitBureau.comThe carmaker is expected to launch yet another round of buyouts, according to the Associated Press, which obtained a copy of the GM/UAW agreement.  It would offer 61,000 remaining hourly employees up to $115,000 in cash, depending on skill levels and years of service, plus a car voucher worth another $25,000.

Initial indications suggest the agreement will pass by a wide margin.  Another concessions contract was approved yesterday by the Canadian Autoworkers Union.

General Motors has already revealed plans to trim 16 of its assembly plants and other factories.  It will add 14 more facilities to that list, sources report, under the revised turnaround plan it hopes will free up as much as $30 billion more in federal aid.  That is expected to cost as much as 21,000 jobs.  However, the UAW agreement requires that the carmaker take back five plants that it had previously transferred to its former parts subsidiary, now the bankrupt Delphi Corp.

GM is also expected to announce that it will cut as many as 3,400 more white-collar jobs, in the coming days.

Separately, reports from Europe suggest that GM could decide, by as early as Wednesday evening, which of three bidders it will move forward with on plans to sell a stake in its struggling, German-based Opel division.  While Italian automaker Fiat SpA has the most grandiose plans for Opel, GM could also select Magna, the Canadian parts supplier, or the U.S. equity fund, Cripplewood.  A senior GM source has told TheDetroitBureau.com it is also possible the automaker could negotiate with more than one of the bidders in hopes of playing them off one another.

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