Business Week, March 20, 2009, Friday

Business Week

March 20, 2009, Friday

Business Week

AP sources: UAW talks with automakers going slowly

By TOM KRISHER

DETROIT

Concession talks involving General Motors Corp., Chrysler LLC and the United Auto Workers have slowed to a crawl as the union waits to see what the companies' debtholders will give up, three people briefed on the negotiations said Friday.

GM and Chrysler are nearing a March 31 deadline to get concessions from the union and debtholders as they try to finish restructuring plans required under the terms of their government loans.

The companies are living on $17.4 billion in federal loans and have requested $21.6 billion more. The Obama administration's autos task force will make the final decisions on the loans as it tries to restructure the troubled U.S. industry.

Under the terms of their loans, GM and Chrysler must reduce labor costs so they are equal to Japanese automakers with U.S. factories. They also must persuade the union to take equity in the companies instead of cash for half of the companies' payments into union-run trust funds that will cover retiree health care expenses starting next year.

In addition, the government wants the automakers to get debtholders to take equity in exchange for two-thirds of what they are owed by the companies. GM owes about $28 billion to bondholders. Chrysler, which is 80.1 percent owned by Cerberus Capital Management LP, does not have bondholders but owes debt to several banks.

The people briefed on the negotiations, who didn't want to be identified because the talks are private, said neither the union nor the debtholders wants to make another move, leading to a high-stakes staredown with less than two weeks before the deadline. Without the deals, the government can call in the loans and send the automakers into bankruptcy, although Steven Rattner, a senior adviser to the autos task force, has said bankruptcy is not its goal.

Ford Motor Co., which is not taking government loans, has reached an agreement with the UAW on concessions, but Chrysler and GM have said Ford's trust fund deal doesn't go far enough to meet the terms of the government loans.

Advisers representing a committee of GM bondholders issued a statement Friday saying that a debt-for-equity plan they have presented to the task force and GM is the best chance for an out-of-court restructuring. The plan would get a high level of acceptance "among a diverse group of GM bondholders," the statement said, without offering details.

The advisers said bondholders are willing to talk, but they distanced the bondholders from GM's financial troubles.

"Remember, the debt did not cause the company's problems; rather, the debt was raised in part to pay for GM's obligations to pension and health funds, among other things -- back when the company was rated at investment grade," the statement said.

Both the union and bondholders have said all parties need to make sacrifices.

A message was left for UAW spokesman Roger Kerson.

Harry Katz, dean of the Cornell University School of Industrial and Labor Relations, said he is confident all sides will work out the details before the upcoming deadline because they have been reasonable thus far.

"They need the aid. There isn't really an alternative," Katz said. "My guess is that all parties will blink when the time comes."