UAW deal is good for GM
DETROIT — The United Auto Workers struck a deal with General Motors and the federal government Thursday to cut labor costs, close factories and change the way retiree health care is funded.
The agreement could ease one of GM’s biggest problems: The cost of its work force. But the automaker is still struggling with a crushing debt that may drive it into a Chapter 11 bankruptcy reorganization.
General Motors Corp., which has received $15.4 billion in federal loans, faces a government-imposed June 1 deadline to finish a major restructuring or be forced into bankruptcy protection.
The government has told the automaker to cut costs, close factories, shed dealers and brands, and persuade at least 90 percent of its bondholders to sign on for the stock-for-debt exchange. But thousands of bondholders are expected to shun the company’s offer to take 10 percent of its stock to wipe out $27 billion in unsecured debt.
Harlan Platt, a professor at Northeastern University in Boston who teaches corporate turnarounds, said the UAW deal could be the catalyst for more bondholders to accept GM’s offer.
GM shares rose more than 32 percent on Thursday — an increase that Platt says indicates that investors see value in the company. Platt believes the stock could climb to around $4 because GM will be able to restructure out of court, emerging with far less debt, lower costs, fewer brands and factories, and a rejuvenated vehicle lineup affordable health insurance.
GM has offered bondholders 225 shares for every $1,000 of debt.
"If you’re getting 225 per $1,000 and the stock goes to $4, which I think it will, you’re getting all your money back," he said. "This is going to be significantly more than they will get in a bankruptcy."
But Douglas Baird, a University of Chicago law professor who specializes in bankruptcy cases, said the bondholder obstacle is nearly insurmountable.
"There’s a collective action problem," he said. "There are a lot of these bondholders. Even if there are a lot of them on board, that’s not the same as 90 percent on board."
Still, the UAW deal could help shorten the length of time GM stays in bankruptcy protection, Baird said, making it easier for the court to concentrate on remaining matters such as the bond debt.
The UAW was withholding details about the deal until plant-level union officials were briefed. The union summoned local officials to Detroit on Tuesday for the explanation, and local union leaders expected voting to end late next week.