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Feds May Break Rules on GM Retiree Pension Plan

Financial engineering makes big bet on future stock value.

by on Sep.18, 2009

Can the VEBA stay afloat on GM stock?

Can the VEBA stay afloat on GM stock?

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) this morning announced a a request for an exemption that — if granted — would allow the General Motors Company to transfer company securities including common stock, preferred stock and a $2.5 billion promissory note, to the revised Voluntary Employee Beneficiary Association (VEBA) health plan established for the company’s retirees.

GM Company is the successor company that purchased substantially all of the assets of General Motors Corporation, which filed for bankruptcy on June 1, 2009, and emerged reorganized in July.

This retiree health plan will cover approximately 700,000 retirees and dependents when it becomes effective on December 31 of this year.

The idea of the VEBA has been around for years, but as adopted by GM, Ford Motor and Chrysler it was a piece of financial engineering that removed obligations from their balance sheets by shifting the responsibility for retiree health care to an independent trust, which in theory will have its own income stream. It lowered automaker borrowing costs for a time. However, the funding never appeared in anywhere near the amounts promised to the UAW.

Under the proposal negotiated as part of  the bankruptcy, GM would be allowed replace more than half of the contributions that it owed to the VEBA with 20% common stock, and the remainder of the contributions will be replaced with a $2.5 billion bond and $6.5 billion in preferred stock. These changes will save GM billions of dollars. It also would transfer the UAW assets of its old VEBA to new one.

“They also greatly increase the risks being assumed by retirees. Depending on the value of the company’s stock, the trustees of the retiree health-care trust fund may have to make further reductions in benefits in the coming years,” the UAW said at the time.

It is widely expected that GM, now largely held in private by U.S. taxpayers, will attempt to go public as soon as next year.

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UAW Picks Its GM Board Member from within

The union's right to appoint directors has been controversial.

by on Jun.19, 2009

Stephen J. Girsky

Funding is a challenge.

The United Auto Workers and the trustees of the Voluntary Employee Beneficiary Association (VEBA) for retired workers selected Stephen J. Girsky yesterday  to fill its seat on General Motors’ board of directors. How the process worked was not revealed.

The VEBA trustees have the right to name a director of the corporation, with consent of the UAW. Starting on 1 January 2010, the VEBA will assume responsibility for paying the health-care bills of GM’s retired workers.

The idea of the VEBA has been around for years, but as adopted by GM, Ford Motor and Chrysler it was a piece of financial engineering that removed obligations from their balance sheets by shifting the responsibility for retiree health care to an independent trust, which in theory will have its own income stream. It lowered automaker borrowing costs for a time. But the funding never appeared in anywhere near the amounts promised to the UAW.

Girsky is president of S.J. Girsky and Company, an advisory firm based in New York. For the past three years, Girsky also has been an advisor to UAW President Ron Gettelfinger and the UAW’s executive board as the union dealt with demands for major concessions from automakers, Congressional critics and even the U.S. Treasury. He also previously worked for GM.

A significant part of the concessions involve retiree health care, which is now completely dependent on the VEBA. The union’s right to appoint directors at both GM and Chrysler Group has been controversial because critics suggest it gives the union too much power. However, Gettelfinger has said directors selected by the union would have solid credentials.

GM will be allowed replace more than half of the contributions that it owed to the VEBA with stock, and the remainder of the contributions will be replaced with a $2.5 billion note and $6.5 billion in preferred stock. These changes will save GM billions of dollars. “They also greatly increase the risks being assumed by retirees. Depending on the value of the company’s stock, the trustees of the retiree health-care trust fund may have to make further reductions in benefits in the coming years,” the UAW said.
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UAW Ratifies Revised GM Contract

Modifications to the GM-UAW 2007 National Labor Agreement are said to eliminate the competitive gap with import plants.

by on May.29, 2009

UAW President Ron Gettelfinger

The modified agreement includes the cost and cash savings.

GM employees represented by the United Auto Workers Union have ratified the modifications to their National Labor Agreement. The amended agreement covers approximately 54,000 hourly employees located in 46 U.S. facilities.

“The leadership demonstrated by UAW president Ron Gettelfinger and UAW vice president Cal Rapson, and the hard work from the members of the GM and UAW negotiating teams, resulted in an innovative agreement that will enable GM to be fully competitive and has eliminated the gap with our competitors,” said Diana Tremblay, vice president of GM’s Labor Relations.

“We very much appreciate the support of our employees and retirees. Their shared sacrifices will enable GM to become a stronger, more viable company that will continue to deliver world-class cars and trucks.”

The modified agreement includes the cost and cash savings in the current version of the GM Viability Plan. GM claims this will enable the company to eliminate the wage and benefit gap with its competitors. It also includes changes to the agreements regarding the Voluntary Employee Beneficiary Association (VEBA) trust for retiree healthcare. The agreement also confirms GM’s plan to use an idled assembly and stamping facility for future production of a compact/small car in the United States to meet future fuel efficiency regulations.

Ford Raises $1.4 Billion through a new Common Stock Offering

Sell-off by investors drives price down over dilution concerns. More stock offerings are planned to raise badly needed cash.

by on May.13, 2009

CEO Alan Mulally is racing against time as Ford's sales collapse continues to consume cash.

CEO Alan Mulally is racing against time as Ford's sales collapse continues to consume cash.

Ford Motor Company (NYSE: F) announced late yesterday that it has agreed to sell 300 million shares of its common stock in a public offering at a price of $4.75 per share for total gross proceeds of about $1.4 billion. Ford also granted to the underwriters a 30-day option to purchase up to 45 million additional shares of common stock to cover over-allotments.  It is unknown if investors will buy all of the new shares of common stock in the offering.

The loss-making company also has a proposal pending at the annual meeting later this week for approval to issue additional shares of common stock in a transaction or series of related transactions in amounts equal to or in excess of 20% of the number of shares of common stock outstanding. Such a large issue requires shareholder approval. But with the Ford family holding 40% of the voting rights, it is likely to be approved, as the company continues to consume cash.

The latest stock issue of 345 million shares will dilute the amount of common shares outstanding by 11%, but in trading yesterday before the shares were priced investors sold off Ford and drove the price down 18% to $5.01. The one-year range on the shares is $1.01 to $8.37.

Ford lost $1.4 billion in the first quarter, after losing a record $14.7 billion in 2008, and decreased its cash from $28.7 billion in the first quarter of 2008 to $21.3 billion in cash for Q1 2009. In the first quarter the company also consumed $3.7 billion in cash. Production, sales, and market share are all declining.     (more…)

Ford Announces Public Offering of another 300 Million Shares of Common Stock

The company is watering the shares in an attempt to raise badly needed cash due to declining sales and market share.

by on May.11, 2009

Read the fine print carefully before buying any of the offered shares.

Read the fine print carefully before buying any of the newly offered Ford Motor Company shares.

Ford Motor Company (NYSE: F) announced late today a public offering of 300 million shares of its common stock at a par value of $0.01 per share. Ford said it also expects to grant to the underwriters a 30-day option to purchase up to 45 million shares of common stock. It clearly is trying to cash in on the well publicized troubles of Chrysler and GM, although its own financial health is on life support.

Ford lost $1.4 billion in the first quarter and decreased its cash from $28.7 billion in the first quarter of 2008 to $21.3 billion in cash for Q1 2009. In 2008 it lost a record $14.7 billion. The offering, depending on final price, could raise $1.8 billion in cash.

Net proceeds to Ford from the offering are expected to be used for “general corporate purposes,” including to fund with cash, instead of stock, a portion of the payments the company is required to make to the Voluntary Employee Beneficiary Association (VEBA) retiree health care trust with the United Auto Workers union, which was agreed to earlier this year. The company also has a proposal pending at the annual meeting later this week for approval to issue shares of common stock in a transaction or series of related transactions in amounts equal to or in excess of 20% of the number of shares of common stock outstanding. 

In total 3,147,397,653 common shares will be outstanding, if the underwriters’ option to purchase additional shares is exercised in full. There will also be 71 million shares of Class B stock. Each outstanding share of common stock is entitled to one vote on all matters submitted to a vote of shareholders. Each holder of Class B, which is held by members of the Ford family, have 40% of the general voting power, as long as at least approximately 60.7 million shares of Class B stock remain outstanding. This means a share of B has 22 votes compared with one vote for one share of common.

This effectively guarantees that control of the company resides with the Ford family, and is one of the primary reasons the company did not seek loan guarantees from the U.S. government since family control could have been lost in a restructuring.  Instead, Ford mortgaged the company before the global financial crisis hit.

Subscribe to TheDetroitBureau.com“We continue to make strong progress on our transformation plan – gaining retail market share with great new products, improving quality, reducing costs and positioning Ford for a return to profitability,” said Ford President and CEO Alan Mulally. “Today’s equity offering is another example of the fast, decisive action we are taking as we build momentum on our plan, including further progress on improving our balance sheet.”

Ford’s actual total market share has declined in 2009.  (more…)