Bloomberg.com, September 19, 2007, Wednesday

Bloomberg.com, September 19, 2007, Wednesday
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a8d2YHjvlv0k

GM, UAW Discuss Retiree-Fund Alternatives, People Say (Update3)

By John Lippert and Jeff Green

Sept. 19 (Bloomberg) -- General Motors Corp. and the United Auto Workers are discussing alternatives to a proposed union-run retiree health-care fund after the two sides couldn't agree on how much money GM would provide, three people with knowledge of the talks said.

Negotiators focused until late today on the contribution to the fund, said the people, who didn't want to be named because the meetings are private. Bargainers will try to resolve other issues, and they may return later to the fund, the people said.

Failure to win UAW approval for the health plan would be a blow to Chief Executive Officer Rick Wagoner's strategy to end losses totaling $12.4 billion in 2005 and 2006. The largest U.S. automaker sought to shift $50 billion in future liabilities to the union in exchange for a one-time payment to the fund.

``It's a terrific setback,'' said Sean McAlinden, an analyst with the Center for Automotive Research in Ann Arbor, Michigan. ``Without the trust fund on retiree health, the first thing GM is going to offer is a massive, rapid offshoring of GM production and jobs.''

Katie McBride, a spokeswoman for Detroit-based GM, had no comment, and UAW spokesman Roger Kerson didn't return phone calls.

Fifth Day After Deadline

Today's talks marked the fifth day since the scheduled Sept. 14 expiration of the UAW's four-year contract. McBride said at about 9 p.m. New York time that negotiations had ended for the day and would resume tomorrow.

UAW President Ron Gettelfinger and representatives of Lazard Ltd., the New York investment bank led by Bruce Wasserstein, were at the negotiating table all day trying to resolve the health-plan impasse, one of the people said. The UAW hired Lazard to help it negotiate the so-called Voluntary Employee Benefit Association, or VEBA.

The UAW on Sept. 13 chose GM as its ``strike target,'' a designation that means the union wants to reach an agreement with GM first and then try to adapt the terms for contracts with Ford Motor Co. and Chrysler LLC.

By refusing to agree to the UAW's terms on retiree health, GM has shown it's willing to risk a walkout, McAlinden said.

GM, Ford and Chrysler estimate they pay $25 to $30 more an hour to American factory workers than Toyota Motor Corp. and Honda Motor Co. do at their U.S. plants. The two Japanese automakers are gaining U.S. market share at the expense of their U.S.-based competitors.

Focused on a VEBA

Investors are focused on a VEBA as the best way to reduce GM's medical liabilities, said John Casesa, managing partner of New York-based consulting firm Casesa Strategic Advisors LLC. GM shares have risen 16 percent since Sept. 12 on optimism that the talks would lead to an accord on retiree care.

``If the two sides can't agree on a VEBA, investors broadly speaking will be disappointed,'' Casesa said. ``The market is expecting that something constructive and meaningful will occur to address the health-care crisis in Detroit.''

Wagoner has already announced plans to shut 12 facilities and has eliminated more than 34,400 union jobs. He has said repeatedly the automaker needs additional health-care savings.

Other Options

``The UAW is under pressure to lower costs in order to expand employment,'' said Harry Katz, a labor relations professor at Cornell University in Ithaca, New York. ``The VEBA is one way, but there may be others -- modifying wages and work rules, or being more flexible in the reduction of employment.''

A strike isn't likely because the damage to both sides would be huge, and Gettelfinger and Wagoner seem to be able to work well together, he said.

``Neither side seems to be overwhelmed by emotion or impulsive behavior,'' Katz said. ``There have been periods of time when that hasn't been true of one side or the other.''

Ford and Chrysler are operating under indefinite contract extensions while the GM talks continue. The contracts cover 180,681 active workers at the three automakers, as well as 419,621 retirees and surviving spouses.

GM fell 79 cents to $34.98 at 4:01 p.m. in New York Stock Exchange composite trading. The shares have gained 14 percent this year.

The automaker's 8.375 percent note due July 2033 rose 0.5 cent to 86.75 cents on the dollar, according to Trace, the bond- price reporting service of the NASD. The yield was 9.79 percent.

Credit-Default Swaps

Credit-default swaps based on GM debt dropped 20 basis points to 555 basis points today in New York. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

The UAW said in a Sept. 17 letter than it might set a new strike deadline if the two sides didn't reach an agreement quickly.

``We do not take your patience for granted and recognize that the negotiations process must accelerate in an expeditious manner or we will be forced to establish a firm deadline,'' Gettelfinger and Vice President Cal Rapson wrote to union executives.

Kerson also didn't return phone calls for comment about the letter, a copy of which was obtained by Bloomberg.

``It's been real rough,'' said Robert Williams Jr., the recording secretary for UAW Local 492 in Portland, Oregon, which represents about 120 workers at a parts depot for dealerships. ``We just hear things from word of mouth. Everyone wants to know what's happening in Detroit, and no one really does.''

To contact the reporters on this story: John Lippert in Southfield, Michigan, at jlippert@bloomberg.net ; Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net

Last Updated: September 19, 2007 22:08 EDT